Conduct Of Lottery Scheme A Betting & Gambling Activity; Service Tax Not Leviable On Transactions Between Purchaser Of Lottery Tickets & Sikkim Govt: SC
The Apex Court allowed Civil Appeals preferred against the Orders of the Sikkim High Court in several Writ Petitions filed by the assessees.
The Supreme Court held that the service tax is not leviable on the transactions between the purchaser of the lottery tickets and the Sikkim Government and that the conduct of lottery scheme is a betting and gambling activity.
The Court held thus in a batch of Civil Appeals preferred against the Orders of the Sikkim High Court in several Writ Petitions filed by the assessees.
The two-Judge Bench of Justice B.V. Nagarathna and Justice N. Kotiswar Singh observed, “Although a lottery ticket is nothing but an actionable claim, the conduct of a lottery scheme is nothing but a betting and gambling activity. Therefore, it is only Entry 62 – List II which enables the imposition of tax by the State Government. The activity of betting and gambling which includes conducting of a lottery is regulated under Entry 34 – List II, with Entry 62 – List II being the taxation entry. … There being no agency and no service rendered by the respondents-assessees herein as an agent to the Government of Sikkim, service tax is not leviable on the transactions between the purchaser of the lottery tickets (respondents-assessees herein) and the Government of Sikkim.”
The Bench said that the expression “betting, gambling or lottery” in the Explanation to Section 66D(i) of the Finance Act, 2012 has to be given its true intent and meaning as conducting a lottery is nothing but an activity coming within the scope of betting and gambling and this is by the application of the principle of noscitur a sociis where the expression ‘lottery’ takes its meaning from “betting and gambling”.
Advocate Chandrashekara Bharathi appeared on behalf of the Appellants while Senior Advocate S. Ganesh and Advocate A.R. Madhav Rao appeared on behalf of the Respondents.
Facts of the Case
The Respondents i.e., the Assessees were the private companies and were engaged in the business of the sale of paper and online lottery tickets organised by the Sikkim Government. They entered into respective agreements with the State. The cases assailed the amendments made to the provisions of the Finance Act, 1994 from time to time commencing from the year 2012. The Finance Act, 1994 was amended to include a new category of taxable services, namely "Business Auxiliary Service" under sub-section (19) of Section 65. Pursuant to this amendment, the Service Tax Department issued notices to the Respondents-assessees, under the amended Finance Act in 2007, requiring them to register under the said Act for payment of service tax. Being aggrieved, the assessees approached the High Court, challenging the levy of service tax upon the sale of lottery tickets.
The Court allowed the Writ Petition of the assessees, declaring that service tax was not payable on the activity undertaken by the assessees. This was challenged before the Supreme Court and during the pendency of the Appeal, the Finance Act, 1994 was further amended. The Court decided the issue but left open the one regarding the validity of the Explanation. Thereafter, when the High Court dismissed the Writ Petition challenging the validity of the Explanation to Section 65 (19)(ii), assessees approached the Supreme Court by filing a Special Leave Petition (SLP). The Apex Court set aside the High Court’s Order and the Finance Act was further amended, deleting the said Explanation. This amended clause was challenged and the High Court allowed the Writ Petitions by striking down the same. Resultantly, the Revenue approached the Apex Court.
Reasoning
The Supreme Court after hearing the contentions of the counsel, noted, “… the relationship between the State Government and the sole distributor was one between a principal and principal and not one between principal and agent. That various clauses of the Agreement indicated that the sole distributor was acting in its own right on purchase of the lottery tickets for onward sales, having regard to the Lotteries Act which is a Central Government legislation and bearing in mind the faith of the general public/customers in the lottery schemes conducted by the Government of Sikkim.”
The Court said that the intent of the Parliament was that any transaction in an actionable claim (lottery being an actionable claim) would not include an activity carried out for the distribution of lottery by the distributor and such activity of the distributor would not amount to the activity of betting, gambling or lottery.
“By way of Finance Act, 2015, clause (a) of the Explanation to Section 67 containing the definition “consideration” was amended to include, inter alia, any amount retained by the lottery distributor or selling agent from gross sale of lottery tickets in addition to the fee or commission, if any, or, as the case may be, the discount received, i.e., the difference in the face value of the lottery ticket and the price at which the distributor or selling agent gets that ticket”, it further noted.
The Court added that the said amendment would have no consequence and bearing on the substantive provisions and this is because the distributor buys at wholesale price from the State Government and sells it at a higher price to the retailer.
“Thereafter, the amendment made to clause [ii(a)] of the Explanation 2 to Section 65B(44) in the year 2016 that the expression “transaction in money or actionable claim” would not include any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out, inter alia, by a lottery distributor or selling agent on behalf of the State Government, in relation to promotion, marketing, etc. in accordance with the provisions of the Lotteries (Regulation) Act, 1998 is only an innocuous amendment which is only cosmetic in nature”, it also remarked.
The Court, therefore, concluded that at each stage, the amendments made to the Finance Act, 1994, in order to impose service tax on the sole distributor/purchaser of the lottery tickets (Respondents-assessees) have been unsuccessful.
Accordingly, the Apex Court dismissed the Appeals.
Cause Title- Union of India & Others v. Future Gaming Solutions Pvt. Ltd. & Another Etc. (Neutral Citation: 2025 INSC 181)
Appearance:
AORs Gurmeet Singh Makke, B. Krishna Prasad, Raj Bahadur Yadav, Rohini Musa, Mukesh Kumar Marori, Arjun Garg, Mukunda Rao Angara, Sameer Abhyankar, Shiwani Tushir, Advocates V. C. Bharathi, A.R. Madhav Rao, Kriti Gupta, Sagun Srivastava, Saaransh Shukla, A R Madhav Rao, Krishna Rao, Aakash Thakur, Rahul Kumar, Ayushi Bansal, and Krishna Rastogi.
