TMI Blog2017 (3) TMI 1417X X X X Extracts X X X X X X X X Extracts X X X X ..... n” was used. In 2015, it was modified to the extent that any activity carried out, for a consideration, in relation to or for facilitation of, a transaction in money except an actionable claim excluding the activity carried out (a) by a lottery distributor or selling agent in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any other manner. The lottery distributor or selling agent is a person appointed or authorized by a State for the purpose of some activities. Article 268A, which was incorporated by the Constitution (Eighty-eighth Amendment) Act of 2003, has recently been omitted by the Constitution (One Hundred and First Amendment) Act, 2016. Entry 92C was inserted by the same constitutional amendment, but admittedly never notified, as pleaded by the learned counsel appearing for the parties and the same has also been omitted by the Constitution (One Hundred and First Amendment) Act, 2016. Thus, reliance can be placed on Entry 97 invoking competence to impose service tax. However, Article 268C confers power and competence on the Union-Parliament to levy service tax on the service providers for considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in bulk from the Government and re-sell the same to the public at large, through authorized agents, stockists, resellers etc. The validity of the said Agreements is five years. Certain amendments were made time and again in the Finance Act, 1994, which came to be challenged in several cases before this Court and consistent decisions were rendered holding that the Parliament lacks competence to frame the law for imposing service tax on lottery dealers. The issue asto whether the lottery distributors, as the petitioners herein, are agents of the State Government, was also considered and decided in favour of the petitioners holding that they were the outright purchasers and not the agents of the State Government, when the State Government alone is competent to organize a paper lottery or online lottery or both under the provisions of the Lotteries (Regulation) Rules, 2010 and the Lotteries (Regulation) Act, 1998. In the meantime, in the teeth of several decisions as discussed in the following paragraphs, the Parliament came out with an amendment by the Finance Act, 2016 to the following effects: - The relevant provisions of the Finance Act, 1994 (as amended by Finance Act, 2016) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notification be held as null and void and be quashed. 6. In oppugnation, Mr. B. K. Gupta, learned Counsel appearing for the respondents 1, 2 and 3, would submit that the service tax is not imposed on lottery but on the services rendered by the distributors or selling agents for marketing, promoting and organizing lottery since the lottery is not exigible to Service tax as the lottery is conducted by the State of Sikkim and the State of Sikkim is not liable to pay any service tax. The Supreme Court held in Sunrise Associates (supra) that lottery ticket is an actionable claim and, as such, it is included in the negative list and there is no imposition and levy of service tax on lottery. Mr. Gupta would further contend that the definition of service as per clause (44) in Section 65B, in Explanation 2 in sub-clause (ii) provides for services rendered by a lottery distributor or selling agent on behalf of the State Government in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing of lottery of any kind or in any manner, in accordance with the provisions of the Lotteries (Regulation) Act, 1998 and, as such, the services provided by the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... slation to levy service tax was inserted by the same Eighty-eighth Amendment. However, the same was never notified. In the meantime, along with the omission of Article 268A, Entry 92C was also omitted by the Constitution (One Hundred and First Amendment) Act, 2016. 9. Finance Act, 2012 provides for imposition of service tax on all the activities except those specified in the negative list or otherwise, etc. The relevant clause reads as under: 65B: In this Chapter, unless the context otherwise requires, - (1) actionable claim shall have the meaning assigned to it in section 3 of the Transfer of Property Act, 1882; (34) negative list means the services which are listed in section 66D; (44) service means any activity carried on by a person for another for consideration, and includes a declared service but shall not include- (a) any activity which constitutes merely- (iii) a transaction in money or actionable claim (51) taxable service means any service on which service tax is leviable under section 66B; 66B. Charge of service tax There shall be levied a tax (hereinafter referred to as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is one of the essential ingredients to establish that any service is a taxable service . It is submitted that in the instant case, the Government does not pay any consideration in any form for the activities to be performed by the petitioner for promotion of the sale by advertisement etc. To the contrary, the petitioner is paying the minimum guaranteed sum towards the full sale consideration to the Government and thus the entire claim of the respondents that the petitioner is providing taxable service is belied by its own circular and understanding of the nature of the petitioner s activity. 12. The Division Bench further considered the competence of Parliament to enact law in exercise of its residuary legislative power under Entry 97, List I to Seventh Schedule of Constitution of India de hors the entries and held as under: - 19. In view of the above conclusions, we allow these petitions, strike down the clause (zzzzn) to sub-section 105 of Section 65 of Finance Act, 1994 as introduced vide Finance Act, 2010 as ultra vires to Constitution of India having been enacted in contravention to Entry 97, List I to Seventh Schedule read with Article 248 of Constitution of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referring to the earlier judgment in Future Gaming Solutions Pvt. Ltd. vs. UOI2, held as under:- 70. In view of the facts and circumstances and the discussions, our conclusions are as under: - (i) In the light of sub-section (1) to Section 65B read with sub- section (44) thereof lottery is excluded from the definition of service 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, organizing, 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 st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; Amendment of section 67. 109. In section 67 of the 1994 Act, in the Explanation, for clause (a), the following clause shall be substituted, namely: - (a) consideration includes (i) any amount that is payable for the taxable services provided or be provided; (iii) any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket in addition to the fee or commission, if any or as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such ticket. 17. Under the amended provisions, the petitioners were held as service providers in respect of service provided as lottery distributor and selling agents and, as such, amenable to service tax, as prescribed under Rule 6(7C) of the Service Tax Rules, 1994. The said provisions came to be challenged in W.P.(C) No. 39 of 2015 (M/s Future Gaming Hotel Services (Pvt.) Ltd. vs. Union of India Ors.) and W.P.(C) No. 40 of 2015 (M/s Summit Online Trade Solutions Pvt. Ltd. vs. Union of India Ors.). The petitioners therein were intimated vide l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich constitutes merely, - (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be sale within the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force. 19. In 2016, by the Finance Bill 2016, further amendments were made in sub-clause (ii) for item (a) in Explanation 2 to clause (44), as under: (a) by a lottery distributor or selling agent on behalf of the State Government, in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any other manner, in accordance with the provisions of the Lotteries (Regulation) Act, 1998 20. In Municipal Council, Kota, Rajasthan vs. Delhi Cloth General Mills Co. Ltd., Delhi and others (2001) 3 SCC 654, wherein Dharmada , being levied only on goods brought within municipal limits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by statute upon property within a defined area, or upon specified classes of property, or upon specified classes of persons, is not within the true significance of the term a tax. Nor so far as appears has it ever been successfully contended that revenue raised by statutory imposts for specific purposes is not taxation. (emphasis supplied) 21. In T.N. Kalyana Mandapam Assn. vs. Union of India and Others (2004) 5 SCC 632, wherein the appellants contended that service tax levied on services rendered by mandap-keeper as defined in Sections 65, 66 and 67 amounted to tax on land and was in view of Entries 18 and 49, List II, within the exclusive legislative competence of the State Legislature. The Supreme Court, analyzing the earlier decisions on the issue, held as under:- 58. A tax on services rendered by mandap-keepers and outdoor caterers is in pith and substance, a tax on services and not a tax on sale of goods or on hire-purchase activities. Section 65 clause (41) sub-clause (p) of the Finance Act, 1994, defines taxable service (which is the subject-matter of levy of service tax) as any service provided to a customer by a mandap-keeper in relation to the use of a m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be termed to be a colourable piece of legislation. It is not the case of the petitioners that the Act is referable to any other entry apart from Entry 56 of List II. Therefore the negation of the petitioners submission perforce leads to the conclusion that the Act falls within the residuary power of Parliament under Entry 97 of List I. 23. In All India Federation of Tax Practitioners and Others vs. Union of India and others (2007) 7 SCC 527, wherein the issue arose for consideration on the constitutional status of levy of service tax and legislative competence of Parliament under Entry 97, List I of Seventh Schedule of Constitution also the competence of Parliament to levy service tax on chartered accountants, cost accountants and architects, having regard to Entry 60, List II of the Seventh Schedule and Article 276 of the Constitution of India, the Supreme Court held as under: 44. Competence to legislate flows from Articles 245, 246 and the other articles in Part XI. A legislation like the Finance Act can be supported on the basis of a number of entries. In the present case, we are concerned with the constitutional status of the levy, namely, service tax. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... void. To the general rule laid down in cause (1), clause (2) engrafts an exception, viz., that if the President assents to a State law which has been reserved for his consideration, it will prevail notwithstanding its repugnancy to an earlier law of the Union, both laws dealing with a concurrent subject. In such a case, the Central Act, will give way to the State Act only to the extent of inconsistency between the two, and no more. In short, the result of obtaining the assent of the President to a State Act which is inconsistent with a previous Union law relating to a concurrent subject would be that the State Act will prevail in that state and override the provisions of the Central Act in their applicability to that State only. The predominance of the State law may however be taken away if Parliament legislates under the proviso to clause (2). The proviso to Article 254(2) empowers the Union Parliament to repeal or amend a repugnant State law, either directly, or by itself enacting a law repugnant to the State law with respect to the same matter . Even though the subsequent law made by Parliament does not expressly repeal a State law, even then, the State law will become void as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person appointed or authorized by a State for the purpose of some activities. By the impugned amendment the words a person appointed or authorized by a State for the purpose of were substituted by the words by a lottery distributor or selling agent on behalf of the State Government, . The substitution does not make substantial changes and the intention remains the same in pith and substance. 28. In the case on hand, Article 268A, which was incorporated by the Constitution (Eighty-eighth Amendment) Act of 2003, has recently been omitted by the Constitution (One Hundred and First Amendment) Act, 2016. Entry 92C was inserted by the same constitutional amendment, but admittedly never notified, as pleaded by the learned counsel appearing for the parties and the same has also been omitted by the Constitution (One Hundred and First Amendment) Act, 2016. Thus, reliance can be placed on Entry 97 invoking competence to impose service tax. However, Article 268C confers power and competence on the Union-Parliament to levy service tax on the service providers for consideration. 29. In T.N. Kalyana Mandapam Assn. and All India Federation of Tax Practitioners (2004) 5 SCC 632, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision rendered by the Full Court or a Constitution Bench of the Court. We would, however, like to think that for the purpose of imparting certainty and endowing due authority decisions of this Court in the future should be rendered by Division Benches of at least three Judges unless, for compelling reasons, that is not conveniently possible. 34. Again in Pradip Chandra Parija and others vs. Pramod Chandra Patnaik and others (2002) 1 SCC 1, a Constitution Bench of the Supreme Court reiterated the same principles of law. 35. Further, in Chandra Prakash and Ors. Vs. State of U.P. and Anr. (2002) 4 SCC 234, the Constitution Bench of the Supreme Court, referring to earlier decisions, laid down guiding principles as under: - 22. A careful perusal of the above judgments shows that this Court took note of the hierarchical character of the judicial system in India. It also held that it is of paramount importance that the law declared by this Court should be certain, clear and consistent. As stated in the above judgments, it is of common knowledge that most of the decisions of this Court are of significance not merely because they constitute an adjudication on the rights of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r arising from this Court, wherein the question of imposition of service tax on lottery tickets was under consideration, the Supreme Court observed as under: - 22. Service tax purports to impose tax on services on two grounds (1) service provided to a consumer, and (2) service provided to a service provider. Service provided in respect of the matters envisaged under clause (19) of Section 65 of the Act must be construed strictly. Before a tax is found to be leviable, it must come within the domain of legitimate business and/or trade. xxxx xxxx 29. Services can be rendered in respect of activities of the State if they are permissible in terms of sub-clause (ii) of clause (19) of Section 65 of the Act and the State itself has been rendering services and not otherwise. While we say so, we are not unmindful of the fact that in terms of the agreement, the respondent not only distributes the lottery tickets printed by the tate but also distributes prizes worth less than ₹ 5000. It issues an advertisement. It has a right to be consulted in respect of design of a lottery ticket. It may also have a say in the matter of arranging for the lottery. But we are not sure as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the distributor or selling agent shall exercise such option for financial year 2010-11, within a period of one month of the publication of this sub-rule in the Official Gazette or, in the case of new service provider, within one month of providing of such service and such option shall not be withdrawn during the remaining part of that financial year. The petitioners case falls in Sl. No. 2, the prize money being less than 80%. (XXXI) On a conjoint reading of Sections 66, 67 and Rule 7(C) it appears that the Service Tax payable by a service provider for promotion, marketing, organizing or in any manner assisting in organizing lottery is @12% or assessed in the manner indicated in the table above on the value of the service provided or to be provided. In respect of the online lotteries the aggregate value of the lottery ticket is to be taken as the value of the service on which Service Tax is payable. In respect to the paper lottery also the same mode has been adopted and gross value of the lottery ticket has been taken as the valuation for the purpose of levy of Service Tax. During the course of argument, Mr. Razzak after seeking instructions admitted that the Serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the extent of ₹ 67,34,800/-. The components of the sale proceeds are given as under: - Draw charges per day- 70,100/- (Minimum Guarantee Revenue) x 8 (No. of draws) Rs.5,60,800/- Admin charges 3000 x 8 (No. of draws) ₹ 24,000/- Printing charges of ₹ 3500 per lac of lottery tickets Rs.10,50,000/- Taxable prize money above ₹ 10,000/- Rs.51,00,000/- Add: Other charges Rs.67,34,800x 7 (each day draw is under a different name) ₹ 4,71,43,600/- ₹ 65,000/- Add Non-taxable prize money up to ₹ 10,000/- is ₹ 20,09,85,206/- x 7 (each day draw is under a different name) Rs.140,69,02,721/- Total - Rs.145,41,11,321/- 41. It is further submitted that there is no payment of any consideration for incidental activities like advertisement etc. and there is no denial of the fact by the respondents that there is any methodology to disti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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