ACTIONABLE CLAIMS AND GOODS ARE NOT SERVICE

[Dr. Sanjiv Agarwal]

The definition of 'service' excludes activity constituting a transfer of title in goods or immovable property by way of sale, gift or in any other manner or where such transfer or supply or delivery of goods is deemed to be a sale within the meaning of clause 29A of Article 366 of Constitution of India. It implies that trading of goods is not a service. As such there was infact, no need for the legislature to include trading of goods in negative list of service in section 66D. Trading is even not a declared service under section 66E of Finance Act, 1994.

Transactions in money and actionable claim shall be out of scope of ‘service’. According to explanation ‘1A’, such exclusion of money transaction will not include any activity relating to the use of money or its conversion by cash or by any other mode, from one form , currency or denomination to another form, currency or denomination, for which a separate consideration is charged.

 “Goods” means every kind of movable property other than actionable claim and money; and includes securities, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. (Clause 25 of section 65B).

The word 'service' appearing in clause (44) of section 65B of Finance Act, 1994 clearly excludes transaction in money or actionable claim. On a combined reading of the ratio laid down in case of Sunrise Associates (2006) 4 STT 105 (SC), with reference to clauses (1) and (44) of section 65B, lottery is not a 'service' being an activity falling within the meaning of 'actionable claim' and, therefore, stands excluded from the taxable service under the Service Tax Laws introduced under the Finance Act, 2012.

In re Microsoft Corporation (India) Pvt. Ltd. 2013 (9) TMI 110 - AUTHORITY FOR ADVANCE RULINGS, NEW DELHI, it was ruled that 'service' excludes sale and deemed Sale of Goods. Transfer of software / games on media meant for off the shelf purchases in retail segment does not tantamount to provision of service. It amounts to manufacture of goods and not liable to Service Tax. It was held that while transfer of  software put on media is not a service, supply of Product Key Cards (PKC), Windows Anytime Upgrades (WAU), Client Access Licenses (CALs), Volume Licensing or Multi-user licensing, etc. relating to electronic downloading/activation of software amounts to provision of services. Similarly, Loyalty programs meant for specific target audience such as IT developers, trainers, professionals, partners etc. who are/want to be affiliated with/certified by Microsoft also amount to provision of service and liable to service tax.

In Sunrise Associates v. Govt. of NCT of Delhi 2006 (4) TMI 118 - SUPREME COURT of INDIA, it was held that lottery tickets are 'goods' in the wider sense of the term though it is an 'actionable claim' and that it is only on account of the statutory exclusion from the definition of goods in various State Sales Tax Laws that it has been held not to be 'goods'. In the matter of Martin Lottery Agencies Ltd. v. Union of India 2007 (9) TMI 39 - HIGH COURT, SIKKIM,  it was held relying upon Sunrise Associates case (supra) that lottery ticket is an 'actionable claim' and, therefore, outside the purview of 'service' and said judgment was not interfered with by the Supreme Court.

In Future Gaming Solution India Pvt. Ltd. v. Union of India 2013 (11) TMI 1003 - SIKKIM HIGH COURT, it was held that lottery is neither goods nor service but actionable claim and that transactions merely in actionable claims are excluded from 'service' and therefore, outside the scope of definition of word 'service'. Since transaction did not amount to service under Finance Act, 1994 any attempt to levy Service Tax thereon by resorting to rule 6(7C) of Service Tax Rules, 1994 was invalid as rules cannot over ride the provisions of the Act. In this case, assessee was engaged in business of sale of lottery tickets organised by Government of Sikkim under an agreement whereby assessee procured lottery tickets in bulk from Government and resold them to public through various agents, stockists, resellers, etc. Department sought levy of service tax thereon arguing that said activity amounted to provision of services by way of promoting, marketing, etc. and was liable to service tax as per rule 6(7C) of Service Tax Rules, 1994. It was held that -

"Where the transaction is purely that of sale and purchase from which the component of service cannot be clearly segregated and is undiscernible, no service tax is payable and that where the two components of 'sale' and 'service' are capable of compartmentalisation service tax may be leviable on the service component in a transaction.

The Department was seeking to impose service tax upon the assessee under the Finance Act, 1994, on the erroneous premises that the assessee was a service provider engaged in assisting in arranging sale of lottery ticket for the Government of Sikkim. Said attempt was clearly unsustainable

Clause (1) of section 65B has defined 'actionable claim' as having the same meaning assigned to it in section 3 of the Transfer of Property Act. Clause (44) defined service inter alia to mean any activity carried out by a person for another for consideration but not to include amongst others a transaction in money or actionable claim".

In Sunrise Associates v. Government of NCT of Delhi (supra), lotteries have been held to be nothing but a transfer of actionable claim. Therefore, from the very provisions introduced by the Finance Act, 2012, i.e., clause (1) of Section 65B read with clause (44), lottery stand excluded by implication from the purview of service tax.

In Tata Sky Ltd. v. State of MP [2013 (4) TMI 373 - SUPREME COURT] , it was held that Direct to Home (DTH) is not an actionable claim as recharge vouchers did not create a beneficial interest in a movable property but only enable a person to enjoy a particular service.

Thus, it is clear that actionable claims are not covered under the scope of Service Tax and so is trading in goods which includes lottery.