No Service Tax on Lottery Agents - Supreme Court dismissed revenue appeal

The Supreme Court today has dismissed the appeal of Union of India in the matter of Union of India & Ors. Versus M/s Martin Lottery Agencies Ltd. [2009 TMI - 33336 - SUPREME COURT OF INDIA] against the judgment of Sikkim High Court in case of Martin Lottery Agencies Ltd.

Honorable Sikkim High Court in case of  MARTIN LOTTERY AGENCIES LTD. Versus UNION OF INDIA [2007 -TMI - 2361 - HIGH COURT, SIKKIM] and [2007 -TMI - 2360 - HIGH COURT, SIKKIM] held that "On the authority of the Constitution Bench of the Supreme Court which delivered its judgment in the Sunrise Associates case (2006) 5 SCC 603 [=2009 -TMI - 33335 - SUPREME COURT of INDIA] lottery tickets have to be held to be actionable claims. As such those would not be goods within the meaning of the definition clause in the Sale of Goods Act. If the lottery tickets are not goods, the writ petitioners cannot said to be rendering any service in relation to the promotion of their client's goods, or marketing of their client's goods, or sale of their client's goods."

Union of India & Ors. Versus M/s Martin Lottery Agencies Ltd. [2009 TMI - 33336 - SUPREME COURT OF INDIA]

"We have been taken through the budget speech of the Hon'ble Minister of Finance for 2008-2009, the relevant portion whereof is as under : "

       "5.4 Business Auxiliary Service :

       5.4.1 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.

       5.4.2 Lotteries fall under the category of games of chance. Games of chance are known under various names like lottery, lotto, bingo etc. and are also conducted through internet or other electronic networks.

       5.4.3 To clarify as removal of doubts, an explanation is added under business auxiliary service stating that services provided in relation to promotion or marketing of games of chance organized, conducted or promoted by the client are covered under the existing definition of business auxiliary service. Amendment is only for removal of doubts and field formations are, therefore, requested to ensure that service tax is collected on such services."

27. The speech of the Hon'ble the Finance Minister would have been relevant for the purpose of opining as to whether the court independently would have arrived at a conclusion that organizing lottery would amount to rendition of service but not otherwise. As it is not possible for us to arrive at the said conclusion, we have no other option but to hold that by inserting the explanation appended to clause (19) of Section 65 of the Act, a new concept of imposition of tax has been brought in. The Parliament may be entitled to do so. It would be entitled to raise a legal fiction, but when a new type of tax is introduced or a new concept of tax is introduced so as to widen the net, it, in our opinion, should not be construed to have a retrospective operation on the premise that it is clarificatory or declaratory in nature."

"24. A bare perusal of the said circular letter would clearly show that lottery tickets were considered to be goods. It is with that mindset, the circular was issued. However, it must have been realised that resale of lottery tickets by the distributor or by others is not permissible. Whether sub-clause (ii) of clause (19) of Section 65 had been applied in case of any other distributor or agent of such lottery tickets is not known. If the assertion of Mr. Salve that nobody had demanded tax under the second clause is correct, we do not know why the principle of `small repairs' by inserting an explanation was taken recourse to. The explanation, in our opinion, cannot be said to be a simple clarification as it introduces a new concept stating that organizing of the lottery is a form of entertainment. Introduction of such new concept itself would have a constitutional implication. In the year 2003, while amending the provisions of 1994 Act, the Constitution was also amended and Article 268A and Entry 92C in List I were inserted. The courts are in future required to determine whether a service tax within the meaning of Entry 92C would cover sale of lottery or it would come within the purview of residuary entry containing Entry 97 List I. If it is held to be a taxing provision within the purview of Entry 97, the same will have a bearing on the States. The Explanation so read appears to be a charging provision. It states about taxing need. It can be termed to be a  sui generis tax. If it is a different kind of tax, the same may be held to be running contrary to the ordinary concept of service tax. It may, thus, be held to be a stand alone clause. A constitutional question may have to be raised and answered as to whether the taxing power can be segregated. If by reason of the said explanation, the taxing net has been widened, it cannot be held to be retrospective in operation."