TMI Blog2015 (10) TMI 1114X X X X Extracts X X X X X X X X Extracts X X X X ..... HIGH COURT] and Future Gaming 2014[2013 (11) TMI 1003 - SIKKIM HIGH COURT] The Petitioners in buying and selling the lottery tickets is not rendering service to the State and, therefore, their activity does not fall within the meaning of 'service' as provided under Clauses (31A) and (44) of Section 65B and, therefore, outside the purview of Explanation 2 to the said Section; In any case, since by the Explanation the scope of Section 66D which is the main provision which is to be expanded, it would be ultra vires the Finance Act, 1994 and is accordingly struck down; Letters having been issued on an erroneous interpretation of Section 66D of the Finance Act, 1994, as amended by the Finance Act, 2015 requiring the Petitioners to pay tax under the Service Tax Rules, 1994, as amended, in the absence of specific provision in the Finance Act and that Sub-Rule (7C) of Rule 6 of the Service Tax Rules, 1994, only provides an optional composite scheme for payment of tax and, therefore, does not create a charge of service tax and is a Subordinate piece of Legislation, hereby stands quashed. Resultantly, Circular under D.O.F. No.334/5/ 2015-TRU dated 19-05-2015 referred to in the afo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... By the amendment, certain changes were brought to various Clauses under Sections 65B, 66D and 67 of the Finance Act, 1994, by which the Respondent No.1, the Union of India through its Secretary, Ministry of Finance, Department of Revenue, Government of India, sought to make service tax applicable to the Petitioner-Companies. 4. In the Writ Petitions, the Petitioner Companies, inter alia, challenge the jurisdiction of the Respondents No.1, 2 and 3 and the legality of their actions in enforcing provisions of the Finance Act, 1994 as amended by the Finance Act, 2015, upon the Petitioner-Companies with effect from 01-06-2015. 5. As a consequence of the amendment, the Respondents No.2 and 3 issued the impugned letter dated 25-05-2015 to the Petitioner-Company in WP(C) No.39 of 2015 and letters dated 18-05-2015 and 12- 06-2015 to the Petitioner-Company in WP(C) No.40 of 2015 bringing to their notice that service providers in respect of services provided by lottery distributors and selling agents were amenable to service tax as prescribed under Sub-Rule (7C) of Rule 6 of the Service Tax Rules, 1994. It is the case of the Petitioners that the amended provisions of the Finance Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y cast upon the Petitioners vide Notification No.7/2015-ST to discharge service tax on reverse charge basis is not sustainable as the activity of selling or marketing agent is not covered under service tax being an activity pertaining to actionable claims which also amounts to betting, gambling and lottery under the negative list. It is asserted that the activity of the agent to the distributors/Petitioners who buy and sell tickets from the Petitioners/distributors is squarely covered under betting and gambling under List II to the Seventh Schedule to the Constitution of India which is a subject-matter of State Legislature and not that of the Union Government. 9. It is then contended that the compounding scheme or optional composite scheme for payment of service tax introduced by way of Sub-Rule (7C) of Rule 6 in the Service Tax Rules, 1994, as amended, does not enable charging of service tax if the levy under the main Act fails as held in Future Gaming Solutions India Private Limited vs. Union of India and Others : 2014 (36) STR 733 (Sikkim) (hereinafter referred to as Future Gaming Case 2014 ). It is further stated that the Petitioners obtained service tax registration unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he law laid down in those cases. Relying upon Delhi Cloth General Mills Co. Ltd. and Another vs. State of Rajasthan and Others : (1996) 2 SCC 449, it is submitted that when a Legislature sets out to validate a tax declared by a Court to be illegally collected under an ineffective or an invalid law, the cause for ineffectiveness or invalidity must be removed before validation can be said to take place effectively. It is asserted that in the amendments, the collection of service tax on the activities of the Petitioners and their agents have not been validated by the amendments brought to the Finance Act, 1994 vide the Finance Act, 2015. Having regard to the fact that the term actionable claim defined under Section 65B of the Finance Act, 1994, have the same meaning assigned to it in Section 3 of the Transfer of Property Act, 1882, whereby it has been defined, inter alia, as a claim to any beneficial interest in moveable property not in the possession of the claimant, it is submitted that in the context of the lottery ticket, it would mean a claim to any beneficial interest in moveable property which is not in the possession of the claimant and that such a beneficial interest ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it was submitted that a direct transaction in regard to an actionable claim, i.e., buying and selling of lotteries as is being done by the Petitioners, would not fall under this Clause as it would cover only those parties who are facilitating the transaction in actionable claims. This proposition was also held by this Court in the Future Gaming case 2015 (supra). 14. Section 66F of the Finance Act, 1994, further lays down that a reference to a service shall not include reference to a service which is used for providing main service. Therefore, even prior to the amendment brought about vide the Finance Act, 2015, while actionable claim was excluded from the definition of service, the services for facilitating an actionable claim or in relation to an actionable claim would be covered in the definition of service. Referring to the case of Hardev Motor Transport vs. State of M.P. and Others : (2006) 8 SCC 613, it was submitted that an explanation, in any view of the matter, cannot enlarge the scope and effect of a provision. 15. The Finance Act, 1994, as amended by the Finance Act, 2015, would cover the activity of the agents who on commission basis are facilitating the transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance of any activity for consideration in relation to promotion/marketing or in relation to promotion, marketing or organising lottery. Similarly, a distributor is not doing any activity for consideration in relation to selling of lottery. It is re-emphasised that it can never be said that when a person buys or sells the lottery tickets, he is (a) promoting the lottery tickets for consideration or (b) marketing the lottery tickets for consideration or (c) doing any activity for consideration in relating to selling the lottery tickets or (d) the lottery distributor cannot be said to be doing any activity for consideration in relation to organising lottery. The organising of lottery is done by the State Government. 17. It is next contended that if mere buying and selling the lottery tickets is to be regarded as an activity for a consideration in relation to a transaction in actionable claim or an activity for consideration for facilitation of a transaction in actionable claim, then even the State Government which is selling the lottery tickets to the distributors would be liable to pay service tax. 18. It is then contended that in the Future Gaming Case 2015 (supra) it has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Limited : 2008 (231) ELT 577 (SC) and State of Kerala and Others vs. Kurian Abraham (P) Ltd. and Others : 2008 (224) ELT 354 (SC). It is urged that it would be evident from the terms of the agreement dated 24-01-2015 in WP(C) No.39 of 2015 and agreement dated 09-05-2005 followed by a supplementary agreements dated 25-04-2008 and 09-11-2015 in WP(C) No.40 of 2014 entered into between the Petitioners and Respondent-State of Sikkim, that the Petitioners procure the lottery tickets from the Government of Sikkim in bulk quantities at a fixed price. Therefore, the transaction between the Petitioners and the Government of Sikkim is on principal to principal basis and the Petitioners are not agents of the Government of Sikkim. The demand of service tax from the Petitioner is, therefore, without jurisdiction. 20. Next, it is contended that Section 66D of the Finance Act, 1994, sets out various items as falling under the 'negative list'. In the erstwhile provision of the Act in 2012, the negative list specifically excluded betting, gambling and lottery from being taxed under the Service Tax Law. However, by the amendment in 2015, an Explanation has been added which reads as foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also buying and selling lottery tickets as, tickets are being sold by the distributor to them in bulk for a price. The agents of the Petitioners are not carrying out any activity for consideration in relation to or for facilitation of a transaction in actionable claim. They are only transacting in actionable claim. Therefore, the liability of payment of service tax under reverse charge mechanism fastened on the Petitioners vide Notification No.7/2015-ST would not arise. It is asserted that the activity carried out by the agent to the Petitioners (distributors) in any case, is also an activity covered under Entry 34 read with Entry 62 of List II of the Seventh Schedule of the Constitution of India and, therefore, tax on such activity can be levied only by the State Government and not by the Centre. The Petitioners are thus not liable to discharge any service tax in regard to an agent who buys the lottery tickets from the State Government and further sells those under reverse charge mechanism vide Notification No.7/2015-ST. 24. Reference was made to Future Gaming Case 2015 (supra) and Future Gaming Case 2014 (supra), where it has been held that even if the Petitioners have taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hillon : (1971) 2 SCC 779, Kesoram Industries Ltd. (supra), Future Gaming Case 2015 (supra). It is further stated that Entry 92C of List I to the Seventh Schedule of the Constitution which provides for taxes on services has not been notified till date and, therefore, even under that provision the Parliament has no competence to levy service tax. 27. Next, it is contended that the entire transaction between the Petitioner and the State- Respondent No.4 is that of sale and purchase and no service is being rendered by the Petitioners reiterating that the entire transaction is on principal to principal basis under an agreement dated 24-01-2015 in WP(C) No.40 of 2015 and agreement dated 09-05-2005 followed by supplementary agreements dated 25-04- 2008 and 09-11-2012 in WP(C) No.40 of 2015 by which the Petitioners purchase lottery tickets from the Government of Sikkim, resells them to agents, stockists, resellers, etc., and in such process earn a profit, being the difference between the sale and the purchase price. By the said agreements, the Petitioners are appointed the sole purchasers of the lottery tickets organised by the Government of Sikkim and unsold tickets are returned to Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r transaction would arise. It is asserted that when in the case of the Petitioners there is no service element and the entire transaction is one of purchase and sale, question of applicability of the provisions of the Finance Act, 1994, which levies service tax would not arise at all. 32. Referring to Bharat Sanchar Nigam Ltd. vs. Union of India : (2006) 3 SCC 1; Imagic Creative (P) Ltd. vs. Commissioner of Commercial Taxes and Others : (2008) 2 SCC 614 and Indian Railways Catering and Tourism Corporation Ltd. vs. Government of NCT of Delhi : 2010 (20) STR 437 (Del), it was urged that sale and service are mutually exclusive and, therefore, a sale transaction is not covered within the ambit of service tax. It is further contended that in view of the decision in State of Bombay vs. R.M.D. Chamarbaugwala and Another : 1957 SCR 874 and B. R. Enterprises (supra) and Union of India and Others vs. Martin Lottery Agencies Limited : (2008) 12 SCC 209, organisation of lottery is in the nature of res extra commercium and not a business or trade and, therefore, by organisation of lottery no services are being rendered by the Government and as such, it cannot be said that lottery is a servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Act, 1994 and, therefore, cannot go beyond it having regard to the well-settled position that Subordinate Legislation cannot override the Statutory Legislation. Although, the Service Tax Rules, 1994, provides an alternative scheme for payment of service tax, unless there is levy of service tax under the statutory provisions, in this case the Finance Act, 1994, the alternate scheme cannot be extended so as to provide for the levy of tax. It is further submitted that levy of tax cannot be inferred from Notifications and Service Tax Rules, 1994. Reliance on this has been placed on Sales Tax Officer, Navgaon and Another vs. Timber and Fuel Corporation : (1973) 2 SCC 292, International Packing Industry vs. Central Board of Excise and Customs, New Delhi and Others : 1987 (32) ELT 317 (AP) and Japan Dyeing Works vs. Commissioner of Central Excise : 1992 (61) ELT 289 (CEGAT, Delhi). 37. The Petitioners next propound that a validating act can cure the statute only if it has the competence to validate the statute in question. It is submitted that the amendment to Clause (44) of Section 65B of the Finance Act, 1994, vide the Finance Act, 2015, has been carried out in order to overc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax in respect of service provided or agreed to be provided by a selling or marketing agent of lottery tickets to a lottery distributor or selling agent ought to be given judicial consideration in the larger public interest in the light of the Article 268 and Entry 92C in List I of the Seventh Schedule to the Constitution of India. It is stated that this provision would clearly indicate that the Parliament is duly empowered to enact law in relation to service tax in respect of service provided or agreed to be provided by a selling or marketing agents of lottery tickets to a lottery distributor or selling agent. It is further stated that the levy of service tax is a sovereign function of the Parliament with the object of collecting revenue under its taxing power to effectively used for correcting economic disparity and inequality as laid down in State of Madras vs. N. K. Nataraja Mudaliar : (1968) 3 SCR 821 (856). That the action of the Respondents is inspired by Articles 38 and 39(b)(c) of the Constitution of India. That the intention of introducing the Finance Act, 2015, by the Parliament is to levy service tax in respect of service provided or agreed to be provided by a selling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial consideration. It is further stated that the Petitioners facilitate 'service' provided or agreed to be provided by a selling or marketing agent of lottery tickets to a lottery distributor or selling agents by distributing, stocking, engaging the subbrokers and sub-stockists, advertising, transporting, collecting money from the buyers and depositing the collected money back to the Government after retaining their consideration, etc. Apart from this, the Petitioners pay the minimum guarantee amount to the Government of Sikkim for providing proper service is not an advance towards purchase price of lottery tickets. This activity of the Petitioners as per the Respondents is chargeable to service tax. 42. On this, reliance was placed to the case of P. Murleedharan vs. Union of India : 2012 (28) STR 344 (Kerala) whereby it has been held that the distribution and marketing the lottery tickets is service and they are chargeable to service tax. It is reiterated that the Petitioners are not the buyers recruited as marketing agent by the State to conduct, organise and promote State Lotteries in accordance with the provisions contained in the Lotteries (Regulation) Act, 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation added to Section 66D(i), it has been clarified that the expression betting, gambling or lottery shall not include the activity specified in Explanation 2 to Clause (44) of Section 65B. Explanation 2 inserted by the Finance Act, 2015 dated 14-05-2015 to Clause (44) of Section 65B, provides that for the purpose of the clause the expression transaction in money or actionable claim shall 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 by a lottery distributor or selling agent in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind in any other manner. 46. It is further stated that the new definition of lottery distributors or selling agents added by Clause (31A) Section 65B of the Finance Act, 2015 defines lottery distributors or selling agent to mean a person appointed or authorised by the State for the purpose of promoting, marketing, selling or facilitating in organising lottery of any kind in any manner organised by such State in accordance with the provisions of the Lotte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 109(3) thereof. It is, therefore, submitted that the impugned letters dated 18-05-2015 and 12-06- 2015 are justified as being issued under the statutory provisions in Circular D.O.F. No.334/5/2015-TRU dated 19-05-2015. 48. Mr. A. R. Madhav Rao, Learned Advocate, appearing on behalf of the Petitioner in WP(C) No.39 of 2015, opening his arguments submitted that this Court had examined similar provisions contained in the Finance Act, 2010, as involved in the present case and held that the Petitioners were not rendering any service and that the service tax provisions were hit by Entry 62 of List II of the Seventh Schedule of the Constitution of India and not saved by Entry 97 of List I of the Constitution of India which is only a residuary entry. Comparing the present Rules with the ones in 2010, the words used earlier were for promotion, marketing, etc., whereas in 2015, the word for is replaced by in relation to promotion, marketing, etc. In addition to this, selling of lottery has been introduced. It is submitted that these minor changes have not made any difference to the finding in Future Gaming Case 2015 (supra) to bring the activity of buying and selling activi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration as provided under amended provision in Clauses (31A) and (44) of Section 65B, is much wider than the definition earlier construed by this Court in Future Gaming Case 2015 (supra) whereby it has been held that taxable service means any service provided for or to be provided to any person by any other person and that definition of 'service' by itself is not satisfied in buying and selling of lottery tickets. 51. The impugned letter dated 25-05-2015 is based upon the Tax Research Unit Circular dated 19- 05-2015 to charge service tax on the Petitioners which justifies the levy for buying and selling of lottery tickets on the ground that the objective of making the exclusion in charging service tax by the amendment of 2015 is to make it explicitly clear that while lottery per se is not subject to service tax, the services in relation to lottery as mentioned earlier, would be taxable. It is asserted that there are no such services being rendered by the Petitioners in relation to lottery activity carried on by it to make them liable for payment of service tax and that, even otherwise, as Entry 62 pertaining to taxes on betting and gambling falls under the State List, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an activity. (aj) In T.N. Kalyanamandapam Association's case (supra) the clear view of the Hon'ble Supreme Court is that the predominant activity of the service provider was rendering of service and levy of service tax on 60% of the gross value was upheld and similarly in Assn. of Leasing Financial Service Companies case levy of service tax on 10% of the gross contract value was upheld being a tax on component of service. (ak) In the present case, undisputedly the lottery ticket is sold as a good by the State Government to the petitioners at the discounted value of 70 paise per ticket as against its gross value/ MRP of Re.1/-. The predominant part of the transaction is sale of goods. While considering the discount of 30% to the petitioners on the MRP, we have held that the discount is a normal trade practice in any transaction of sale and purchase. If the seller sells the goods at the MRP to its ultimate consumer, no intermediary will sell the goods unless he gets a discount to meet the expenditure for establishment, logistics and some component of profit. The State Government is unable to sell the tickets to the ultimate buyers and for that purpose the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice tax upon lotteries but for Entry 62 List II whereunder it is the exclusive legislative domain of the State Legislature to levy tax on any nature on the lotteries. 54. The Learned Counsel stressed upon the above extracted portion of the decision in Future Gaming Case 2015 (supra) to submit that this Court had held that there is no service being rendered and the State Government is not paying anything for any service. Mr. Rao would submit that even in the later case of Future Gaming Case 2014 (supra), this Court while construing the provisions introduced in 2012, had held that definition of service itself excluded actionable claim which fell outside the purview of the definition of service. Further, a Subordinate Legislation could not bring in the levy by way of Sub-Rule (7C) of Rule 6 of the Service Tax Rules, 1994 which Rule has been retained even in 2015 with enhanced rates. Even on the contention of the Respondents that the new provision only dealt with the activity of the Petitioners of promoting, organising or in any other manner assisting in arranging sale of lottery ticket and not on lottery per se, it had been held that there was no such activity to render it taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court dated 26-03-2015 in Special Applications No.10903 and 13134/2009 in the matter of Niko Resources Limited vs. Union of India and Others wherein an Explanation introduced to get over the binding judgment was under consideration, it was held, inter alia, that such object cannot be achieved only by introducing a non obstante clause. The decision in Hardev Motor Transport (supra) was also relied upon to propound that an Explanation cannot unseat the main provisions itself as was being sought to be done by the amendments in 2015. 57. Addressing us on the impugned Notification No.7/2015-ST amending the basic Notification No.30/2012-ST by which distributor or marketing agent has been made liable to pay whole of the service tax in respect of the activities of the selling agent to whom tickets are being sold by distributor or selling agent under reverse charge, it was submitted that since selling or marketing agents to the Petitioners are also buying and selling lottery tickets, the relationship which the Petitioners have with the State Government would also subsist between the Petitioners/Distributors and the selling or marketing agents as the agents are only transacting in ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 2 to Clause (44) of Section 65B. Thus, even the Explanation to 66D would not apply on the activity of the agent to the Petitioners/Distributors for the reasons aforesaid. Therefore, the reverse charge levied on the Petitioners for the activities of their selling or marketing agents would be unsustainable in law. 60. Mr. Surajit Dutta, Learned Counsel appearing on behalf of the Petitioner in WP(C) No.40 of 2015 while adopting the arguments of Mr. Rao, Learned Counsel for the Petitioner in WP(C) No.39 of 2015, only chose to supplement by submitting as follows:- (i) The amendments brought to the Finance Act, 1994 vide the Finance Act, 2015, which are new in the present case has to be considered in the light of the definition of 'lottery' provided under Section 2(b) of the Lotteries (Regulation) Act, 1998, by which it is a scheme, in whatever form and by whatever name called, for distribution of prizes by luck of chance made those persons participating in the chances of a prize by purchasing tickets. In other words, it includes the entire activities connected with lottery. (ii) The provisions of Section 4(c) of the Lotteries (Regulation) Act, 1998, that the State Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Constitution of India would in his submission, render the imposition of the levy of service tax by the Respondents as legal and valid. It is submitted that the decision of this Court in Future Gaming Case 2015 (supra) in holding that Entry 92C under List I in the Seventh Schedule to the Constitution of India has not been notified is incorrect in view of the finding in the various decisions of the Hon'ble Supreme Court including All India Federation of Tax Practitioners (supra). 62. It was then submitted that the Lotteries (Regulation) Act, 1998, was enacted to curb the evil attached to it for which harsh measures were felt essential. It is then submitted that it was in the exclusive domain of Parliament alone to enact a law in respect of lottery and no State Legislature under Entry 34 would have the power to do so. He would strongly rely upon H. Anraj and Others Etc. vs. State of Maharashtra : (1984) 2 SCR 440 to impress upon us that it is the Union Parliament under Entry 40 of List I of the Seventh Schedule to the Constitution which alone can enact a law on lottery. He would specifically emphasise the following paragraph:- Entry 40 of List I of the VIIth Schedule to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as not disputed before me by the learned counsel. There is an apparent overlapping between Entry 40 in List I and Entry 34 in List II. It must follow that out of the field of legislation comprised by the expression betting and gambling (including the conduct of lotteries), lotteries organised by the Government of India or the Government of a State are taken out and reserved to be dealt with by the Parliament. No Legislature of a State can, therefore, make a law touching lotteries organised by the Government of India or the Government of a State. As per the Learned Counsel, the aforesaid decisions would negate the view expressed by this Court in Future Gaming Case 2015 (supra). 64. It is further submitted that under Entry 62 dealing with taxes on betting and gambling, the State Legislature cannot enact a law on taxation of lottery since the subject-matter is not inheres in the concept of gambling in Entry 62 of the State List. Entry 92C in List I having not been enforced taxation on lottery would be covered by the residuary power under Entry 97 of List I because admittedly the power of Parliament to regulate lottery under Entry 40 does not include the power of tax. By refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, except for certain changes brought about to Sections 65B, 66D and 67 of the Finance Act, 1994 which would be a subject-matter for consideration in these Writ Petitions in the light of what have been decided earlier in the two rounds of litigation on the subject, the questions that have been raised and urged on behalf of the parties are identical. 67. We have set out the pleadings and the oral submission of the parties in extenso to demonstrate the width of the area that was covered but, the primary question that falls for determination is as to whether by the amendments to these provisions that shall be dealt with in detail later, is as to whether or not the activity of the Petitioners of promoting, organising or assisting in arranging the sale of lottery tickets of the Government of Sikkim is a taxable service falling within the purview of the Finance Act, 1994 as amended by the Finance Act, 2015. The cognate question that would then arise is as to whether there is an element of service in the activity of the Petitioners. These were the very questions that arose in the two previous cases. The other question that has cropped up in the present cases is also as to whether the U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Supreme Court in the Special Leave Petitions filed by the Respondents but, there being no order of stay, the findings would still prevail until such time it is set aside. Thus, so far as the question on the legislative competence of the Union Parliament to levy service tax in concerned, it is no more res integra subject of course to the final decision of the Hon'ble Supreme Court. For the present, it is settled that the Union Parliament has no such competence in view of the specific findings of this Court on this question in the two cases referred to earlier. We may, therefore, not delay ourselves on this. 70. In our view, the crucial question that would require determination is as to whether there has been any change on the finding of this Court in Future Gaming Case 2015 (supra) and Future Gaming Case 2014 (supra) that the activities of the Petitioners would not constitute 'service' in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind and in any other manner by introduction of the Explanation 2 to Clause (44) of Section 65B by the Finance Act, 1994 as amended vide the Finance Act, 2015. In Future ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in organising game of chance including lottery being an activity of betting and gambling under Entry 62, List II to Seventh Schedule of Constitution of India, the State Legislature alone is competent to levy any tax on such activity under Entry 62. (iv) The Parliament has the competence and jurisdiction to levy taxes on any subject matter including service tax under Entry 97, List I, read with Article 248 of the Constitution of India except where such powers are traceable to any of the entries in List II and III to Seventh Schedule of Constitution of India. (v) Power to tax the activity of betting and gambling as explained above being within the exclusive domain of State Legislature under Entry 62, List II, the Parliament in exercise of its residuary power under Entry 97, List I to Seventh Schedule of Constitution of India lacks legislative competence to impose any tax including service tax on such activity. 73. Upon such conclusion Sub-Clause (zzzzn) to Clause (105) of Section 65 of the Finance Act, 1994 introduced by Finance Act, 2010 was struck down as being ultra vires the Constitution of India having been enacted in contravention to Entry 97 of List I of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 014 (supra) will answer the question as to whether or not the activity of the Petitioners of promoting, marketing or assisting in arranging the sale of lottery tickets of the Government of Sikkim is a taxable service falling within the purview of the Finance Act, 1994 as amended by the Finance Act, 2015. 45. On behalf of the Petitioner, the challenge to the amendment of 2012 to the Finance Act, 1994, is multi-pronged but, in our view, the question that would clinch the issue would be as to whether or not the Petitioner is an agent of the Government of Sikkim in pursuance to the agreement dated 10-08-2009 in respect of the sale of lottery tickets. However, we find that this question which was also directly in issue stands fully answered in the judgment of this Court dated 29-11- 2012 in WP(C) No.36 of 2011 in the matter of M/s. Future Gaming Solutions Pvt. Ltd. (supra) and, therefore, it need not delay us much except to recapitulate hereafter on some of the essential aspect of the finding. 46. We find that the pleadings and oral submissions placed before us on the question are identical and repeat of those placed in WP(C) No.36 of 2011. The decisions as well as other prece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Agency, 16th Edition 1996 (supra) were also taken note of and referred to while considering this question. Decisions in Alwaye Agencies (supra); Gordon Woodroffe (supra); Bharat Sanchar Nigam Ltd. (supra); Imagic Creative (P) Ltd. (supra) and Indian Railways C. T. Corpn. Ltd. (supra) were also analysed for determination of the very question. Upon consideration of all these it was ultimately concluded 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. 48. On the related question regarding the discount of 30% provided on the MRP of the lottery ticket which as per the Respondents was a commission provided to the Petitioner in lieu of the service rendered by them, we had taken note of Mahindra and Mahindra Ltd. (supra); Pioneer Tolls and Appliances (P) Ltd. (supra); Philips India Ltd. vs. Collector of Central Excise, Pune : (1997) 6 SCC 31; Collector of Central Excise, Boroda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rictly. On payment of sale price, ticket is sold at that price. Whether it is further sold to their sub agents or they directly sell to to the public is not the Government's look out. Even if bulk tickets purchased by the petitioners remains unsold, Government is not bound to pay anything to them. It is the loss of the petitioners. Sold tickets will not be taken back by the Government. As per the terms in Ext.P1, Government is not responsible for paying anything to the petitioners. Section 194G authorises only the deduction at source if Government is liable to pay any commission or any remuneration to the lottery agents. Unlike Section 206C, Section 194G is not giving any permission to collect tax from the buyer. If Government pays remuneration or commission or any amount (by whatever name it is called) to the lottery agents, Section 194G will apply. Here, Government is selling the tickets to the petitioners at a reduced price considering the bulk quantity they are purchasing, in order to boost up the sale of lottery tickets on commercial consideration. But that is outright sale. It is a well-settled principle that in a taxing Statute, one has to look merely ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e' being 'actionable claim'; (ii) Even under Sub-Section (34) of Section 65B read with Sections 66B and 66D lottery stands excluded from the purview of service tax under the Finance Act, 2012 as being one in the 'negative list'; (iii) The activity of the Petitioner comprising of promotions, organising, reselling or any other manner assisting in arranging of lottery tickets of the State Lotteries does not establish the relationship of a principal or an agent but rather that of a buyer and a seller and, on principal to principal basis in view of the nature of the transaction consisting of bulk purchases of lottery tickets by the Petitioner from the State Government on full payment on a discounted price as a natural business transaction and, other related features like there being no privity of contract between the State Government and the stockists, agents, resellers under the Petitioner. (iv) The impugned letter C. No.V(3)7/ST/FGSIPvtLtd/ GTK/ 2009/295 dated 06-07-2012 does not have the sanction and authority of either the Constitution or the law as there is no provision anywhere for imposing of service tax on 'lottery' and the action of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (iii) a transaction in money or actionable claim; . Explanation 2.-For the purposes of this clause, the expression transaction in money or actionable claim shall not include- . (ii) 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- (a) by a lottery distributor or selling agent in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner; . Negative list of services. 66D. The negative list shall comprise of the following services, namely:- . (i) betting, gambling or lottery; Explanation.-For the purposes of this clause, the expression betting, gambling or lottery shall not include the activity specified in Explanation 2 to clause (44) of section 65. . Valuation of taxable services for charging service tax 67. (1) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 82. As would appear from the provisions reproduced above, Clause (31A) has been specifically inserted under Section 65B to include definition of lottery distributor or selling agent . Under Clause (44) 'service' has been defined to mean any activity carried out by a person or another for consideration and includes a declared service but shall not include an activity which constitutes merely a transaction in money for actionable claim. In order to overcome the finding of this Act in the earlier judgments, Explanation 2 appears to have been inserted to Clause (44) of Section 65B by which the transaction in money or actionable claim as provided under Clause (44) excluded any activity carried on 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 in relation to promotion, marketing, organising, selling lottery or facilitating in organising lottery of any kind in any other manner. Similarly, in Section 66D which provide for the negative list of service another Explanation is found to have been inserted by which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... includes its successors in office and assigns of the FIRST PART AND M/s. Future Gaming and Hotel Services Private Limited, a company having its registered office at 54, Mettupalayam Road, G. N. Mills Post, Coimbatore 641029 Tamilnadu, and having its branch/sales office at Kazi Road, Gangtok, Sikkim- 737101, represented by its Managing Director, Mr. S. Martin, son of Mr. Santiago (hereinafter referred to as the 'Sole Purchaser / Distributor') which expression shall, unless excluded by or repugnant to the context means and includes its successors and assigns of the SECOND PART; . WHEREAS M/s. Future Gaming and Hotel Services Limited has agreed to be appointed as the Sole Purchaser/ Distributor to market and sell tickets of such lottery schemes as are allotted to them by the Government. . .. 2. APPOINTMENT OF SOLE PURCHASER/ DISTRIBUTOR/PROMOTER Notwithstanding anything contained hereinafter, the Government, the Sole Purchaser/Distributor, Promoter and their distribution network shall all be jointly and severally liable to ensure that all provisions of the Act and Rules are strictly followed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, the Sole Purchaser/ Distributor shall ensure that the manner in which the lotteries of the State are portrayed in written, visual or electronic media do not tarnish the image of the Government. 13.3 All costs towards such publicity shall be exclusively borne by the Sole Purchaser/ Distributor. . 85. As would appear from the clauses of the agreement extracted above, the Petitioner is in fact a wholesaler as held in Future Gaming Case 2015 (supra) and the relationship between the Petitioner and the Government of Sikkim is on a principal to principal basis. The very words used in the recital that the Petitioner has agreed to be appointed as the sole Purchaser/Distributor to market and sell tickets of lottery schemes would reveal that the Petitioner is not an agent of the Government of Sikkim who is carrying on the activity of marketing or selling of lottery on a consideration of promotion of a commission or the like. Thus, we are inclined to agree with the submission of Mr. Rao that the interpretation of TRU Circular dated 19-05-2015 as reproduced earlier is clearly erroneous as the department has failed to take note of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 6 cannot go beyond the provision of the Finance Act, 1994. While holding this, we have placed reliance upon Tahir Hussain vs. The District Board, Muzaffarpur : AIR 1954 SC 630; Hukum Chand Etc. vs. Union of India and Others : AIR 1972 SC 2427; Jagat Talkies Distributors vs. Deputy Commissioner of Police : (2010) 170 DLT 659 (Del) and Union of India vs. S. Srinivasan : JT (2012) 5 SC 618. This provision has not changed even now and, therefore, the finding would apply even in this case. 89. As noted earlier, the amendments in question have been carried out by the Parliament in order to overcome the decisions of this Court in the Future Gaming Case 2015 (supra) and Future Gaming Case 2014 (supra) which we have alluded to in detail. We agree with Mr. Rao that it is trite that when a Legislature sets out to validate a tax declared by a Court to be illegally collected under an ineffective or an invalid law, the cause for ineffectiveness or invalidity must be removed before the validation can be said to take place effectively. We may in this regard, refer to the decision of the Hon'ble Supreme Court while dealing with a similar circumstance in the case of Delhi Cloth and General ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Distributors as goods on payment of price leaving the former charged with all the liabilities down the line to the second tier agents it cannot, in our view, be considered as an activity carried out for consideration in relation to or for facilitation of a transaction in money carried out by a lottery distributor or a selling agent in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind in any other manner as provided under Explanation 2 to Clause (44) of Section 65B. There is no dispute of the fact that like the Petitioners/Distributors in the first tier who purchase the lottery tickets in bulk as goods for price from the State Government, the second tier comprising of the selling and marketing agents also purchase from the Petitioners/Distributors lottery tickets in bulk as goods on payment of price severing all other relations. There is no privity of contract between the Petitioners/ Distributors and the sellers and buyers down the line after the second tier. Thus, the levy of reverse service tax vide Notification No.30/2012-ST dated 20-06-2012 as amended by Notification No.7/2015-ST dated 01-03- 2015 is clearly unsus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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