SERVICE TAX ON PROMOTION OF GAMES OF CHANCE / LOTTERY

[Dr. Sanjiv Agarwal]

Service tax has been imposed or the service of promotion, marketing or organizing of games of chance, including lottery by the Finance Act, 1994 w.e.f. a notified that by carving out a separate category of taxable service, which was hitherto, taxed under business auxiliary services w.ef. 16.5.2008.

Games of Chance etc

The taxable service rendered should be in relation to games of chance including lottery, bingo or lotto or by any other name called and includes online games etc.

Games of Chance

Games of chance have been included in scope of taxable service by Finance Act, 2008. Games may relate to games of chance generally known as lotteries, lotto, bingo etc. 'Chance' indicates a possibility of some thing happening, some thing unpredictable, with some degree of uncertainty. 'Bingo' is a game in which players mark off numbers on cards as the numbers are drawn randomly by a caller, the winner being the first person to mark off all their numbers so called. 'Lotto' is also a game similar to bingo wherein numbered or illustrated counters or cards are drawn by the players. It is a form of lottery. In case of 'lottery', the success or winning or outcome is governed by pure chance. It means raising of money by selling numbered tickets and giving prizes to the holders of numbers drawn at random.

The marketing or promotion of all such games of chance have been brought into service tax net and lottery, lotto, bingo are only illustrative examples. It may include raffle, tambola and other derived games of chance. It is not the games as such which are taxed but marketing or promotion of such games of chance shall attract service tax.

It may also be noted that Sikkim High Court in Martin Lottery Agencies Ltd v. Union of India 2007 -TMI - 2361 - HIGH COURT, SIKKIM has held that lotteries can not be considered as service and taxed under business auxiliary service. Lottery tickets were held to be actionable claims and not goods as per Sale of Goods Act, 1930 by apex court in Sunrise Associates Case (2006) 5 SCC 603 Sikkim High Court in (2007) 8 STR 662 held that purchase of lottery tickets in bulk from Government does not constitute service as goods are purchased from the state by a third party. High Court observed as under—

In Union of India & Others v. Martin Lottery Agencies Ltd 2009 -TMI - 33336 - SUPREME COURT OF INDIA, the apex court has held that service tax can not be levied on sale of lottery tickets but sales promotion or marketing of lottery tickets shall be exigible to levy of service tax under business auxiliary service.

Prior to amendment in the definition of business auxiliary service in 2008 by Finance Act, 2008, in the case before Sikkim High Court, in Martin Lottery Agencies Ltd. v. Union of India 2007 -TMI - 2360 - HIGH COURT, SIKKIM, High Court held that where assessee was engaged in purchase of lottery tickets from State Government and subsequent sale and where lottery tickets have been held to be actionable claims and not goods as per Sale of Goods Act, 1930, it was held that petitioner was not rendering services in relation to promotion of client's goods and service tax liability did not.

In view of the aforesaid decision, legislative amendment was made by Finance Act, 2008 to included games of chance and lottery in the service tax net under business auxiliary services.

At that time, CBEC has vide Letter No. 334/1/2008-TRU dated 29.2.2008 clarified as under -

"Services provided in relation to promotion or marketing of service provided by the client is leviable to service tax under business auxiliary service. Organization and selling of lotteries are globally treated as supply of service. Lotteries (Regulation) Act, 1998 enables State Governments to organize, conduct or promote lotteries. Lottery tickets are printed by the State Governments and are sold through agents or distributors. Tickets are delivered by the State Government to the distributors at a discounted price as compared to the face value of the tickets. Services provided by the distributors or agents in relation to promotion or marketing of lottery tickets are leviable to service tax under the existing business auxiliary service".

Taxable Service

Section 65 (105 ) (zzzzn) of the Finance Act, 1994 defines taxable services as under -

"Any service provided or to be provided to any person, by any other person, for promotion, marketing, organising or in any other manner assisting in organising games of chance, including lottery, bingo or lotto in whatever form or by whatever name called, whether or not conducted through internet or other electronic networks".

With the insertion of new clause (zzzzn), the explanation to clause (ii) of section 65(19) defining business auxiliary service which gave authority to levy service tax on promotion or marketing of games of chance has been omitted by the Finance Act, 1994.

To be a taxable service, following points are worth noting -

(a) Service can be provided by one person to any another person.

(b) Taxable service should be in relation to games of chance for -

* promotion,

* marketing,

* organizing,

* conducting, or

* assisting in any manner

(c) The games should be any one or more of the following games in any form or name-

* games of chance

* lottery of State Governments etc

* bingo

* lotto

(d) Such games could be conducted online or though internet or electronic network or otherwise.

CBEC Clarification

CBEC has vide Circular No 334/1/2010-TRU dated 26.2.2010 clarified as follows-

 

"1. Services of promoting, marketing or organizing of games of chance, including lottery.

1.1 Lotteries are conducted by various State Governments and are regulated by a Central legislation, i.e. the Lotteries (Regulation) Act, 1998. The said Act provides the conditions, restrictions and prohibitions pertaining to organization of lotteries conducted by the State Governments. Section 4 of the said Act enjoins upon the State Governments to print lottery tickets bearing the imprint and the logo to ensure authenticity of the lottery ticket. It also provides that 'the State Government shall sell tickets either itself or through distributors or selling agents'.

1.2 The State Governments appoint distributors to advertise, promote and sell lottery tickets. Besides the State Governments organizing lotteries, some other games of chance are also being organized. The services provided for promotion or marketing or organizing such games of chance are now being covered by introducing a separate taxable service to cover the services in connection with games of chance, organized conducted or promoted by the client, in whatever form or by whatever name called (such as lottery, lotto) under the 'Games of chance' service. The tax would be applicable also to such games conducted online. Consequently, the Explanation appearing under 'Business Auxiliary Service' is being deleted".

Value of Taxable Service

Gross amount charged by the service provider for promotion etc of games of chance including lottery shall be liable to service tax. The value will also include commission paid to lottery agents and distributors.

Person Liable

Any person providing taxable services of promotion of games of chance or lottery including selling agent and distributors shall be liable to pay service tax.