TMI Blog2009 (5) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment per S.B. Sinha, J.]. - Leave granted. 2. Whether sale, promotion and marketing of lottery tickets would be exigible to 'Service Tax' within the meaning of the provisions of Section 65(105) of the Finance Act, 1994 (hereinafter called and referred to for the sake of brevity as 'the Act') is the question involved in this appeal which arises from a judgment and order dated 18.9.2007 passed by the High Court of Sikkim in Writ Petition (c) No. 19 of 2007. 3. Respondents are agents of the State of Sikkim. The State Government floated "schemes" whereby the total number of tickets therefor was prescribed. In terms of the said schemes, the respondent purchases all lottery tickets in bulk form on "all sold basis". It pays Rs.70 per ticket for the face value of Rs.100/-. In turn, it sells the ticket to its principal stockists on "outright" and "all sold basis": It makes a profit out of the margin out of the difference between the amounts received from the principal stockists and the amounts paid to the State Government. The principal stockists in turn sell the tickets to the sub-stockist and who in turn sell to the agents. The retailers purchase tickets from the agents and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ickets itself for Rs.70/-. Is this a promotion of the lottery marketing of lottery tickets produced or provided by the State? If it is not, then what is the difference between a person buying lottery tickets of face value of Rs.100/- at Rs.100/- from the State Government directly, and a person who is buying it at a reduced price? Is the reduced price of Rs.30/- in relation to goods, originally belonging to the State Government, a reduction for the purpose of marketing and further sale, and is it for the purpose of marketing, which the true and core business activity of the writ petitioner? Is the business violability of the writ petitioner dependent only on the middleman succeeding in getting a market for the original goods, and is the margin of 30% sufficient to cover this type of business venture? These questions might merely be asked today but need not be answered today without hearing parties fully. I am of the opinion that on a balance of circumstances it appears that the essence of activity, properly so called, cannot but be promotion or marketing. Order and observations, however worded are without prejudice to the rights and contentions of the parties. There will be no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered as a service and, thus, the High Court committed a serious illegality in relying upon the decision of this Court in Sunrise Associates vs. Govt. of NCT of Delhi Ors. reported in (2006) 5 SCC 603. (iii) Explanation appended to Section 65 (19) being clarificatory and/or declaratory in nature must be held to have a retrospective operation. (iv) Entries 34 and 62 of List II of the Seventh Schedule of the Constitution of India does not create any kind of fetter on the powers of the Parliament to impose service tax on the assessee who provide the service of promotion and marketing of lotteries. The aforementioned two entries empower the State Legislature to impose tax on betting and gambling and other luxuries. In the instant case, however, what is sought to be taxed under sub-clause (ii) of clause (19) of Section 65 of the Finance Act, 1994 is the services rendered by an assessee to its client in promoting and marketing of lotteries organized by the State Government and not anything else. (v) A transaction may involve two taxable events in its different aspects, as has been held by the Constitution Bench of this Court in Federation and Association of Hotels and Restaura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any kind of service by the State to it does not arise. (v) In any event, explanation appended to Section 65(19) having only a prospective operation, service tax, if any, can be levied only with effect from 16.5.2008 and not for a period prior thereto. 8. Before adverting to the rival contentions raised before us by the learned counsel for the parties, we may notice the relevant provisions of the Finance Act, 1994 (The Act). Chapter V of the Act provides for levy of service tax. It is levied on "taxable services" as defined in Section 65(105) thereof. Section 66 is the charging section and Section 68 provides for payment of service tax. Sub-clauses (i) and (ii) of Section 65(19) which are relevant for our purpose, read as under:- "Section 65(19) "business auxiliary service" means any service in relation to,- (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or" The term "business auxiliary service" was inserted in the Act by Finance Act, 2003 which came into force on 01.07.2003. The term "business auxiliary service" includes services as a commission a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate is permissible, inter alia, in terms of Article 298 of the Constitution of India. If it is not otherwise prohibited, the State in exercise of its executive power contained in Article 162 of the Constitution of India may also have the power to conduct a trade or business. 12. For invoking the provisions of Chapter V of the 1994 Act, the basic question which is required to be posed and answered is as to whether the lottery tickets are `goods' within the meaning of Sale of Goods Act. It is evidently not. A Constitution Bench of this Court in Sunrise Associates (supra) held to be so. H. Anraj v. Government of Tamil Nadu reported in [(1986) 1 SCC 414] was overruled opining that sale of lottery tickets does not involve sale of goods and that at the highest stage, transfer of it would amount to transfer of an actionable claim. In Yasha Oversees v. Commr. of Sales Tax Ors. [(2008) 8 SCC 681], Sunrise Associates (supra) was distinguished, stating : "37. The decision in Sunrise makes two very significant points and to us it appears that the decision mainly turns on those two points. The first is with regard to the two different meanings of 'property', as highlighted in pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent shows that it is not a case involving simpliciter sale of goods but in effect and substance respondent was rendering service in relation to promotion or marketing of service provided by the State. 14. This gives rise to a question, i.e., Does the State in organizing lottery render any service and, if so, to whom. The learned Additional Solicitor General submits that service is being rendered to the general public as revenue is generated therefrom. We fail to persuade ourselves to agree with the aforementioned submission. The law, as it stands today (although it is possible that this Court in future may take a different view), recognizes lottery to be gambling. Gambling is res extra commercium as has been held by this Court in The State of Bombay v. R.M.D. Chamarbaugwala [1957 SCR 874] and B.R. Enterprises v. State of U.P. Ors. [(1999) 9 SCC 700]. 15. Contention of Mr. Salve is that where the State involves itself in an illegal activity, it cannot render a service as dealing in lottery is illegal being res extra commercium, no services can be rendered. We, as at present advised, do not intend to go into the said issue which is a complex one, in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s citizens and the concept of imposition of reasonable restrictions thereon being absent, it was held that gambling should be frowned upon being opposed to constitutional jurisprudence. While borrowing the said principle in the Indian context, however, it must be borne in mind that Constitution of India envisages reasonable restrictions in respect of almost all the fundamental rights of the citizens. No citizen has an absolute fundamental right. Whereas the same principle may apply in Australia but it may not apply to the European Countries where gambling and even sale of narcotic drugs subject to licensing provisions, if any, is permissible. The concept of res extra commercium may in future be required to be considered afresh having regard to its origin to Roman Law as also the concept thereof. Conceptually business may be carried out in respect of a property which is capable of being owned as contrasted to those which cannot be. Having regard to the changing concept of the right of property, which includes all types of properties capable of being owned including intellectual property, it is possible to hold that the restrictions which can be imposed in carrying on business in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is a constant endeavour of the Ministry of Statistics and Programme Implementation, charged as it is with the responsibility for setting standards for collection, compilation and dissemination of statistical data in India, to establish classification systems as well as updating existing ones. This is necessary to keep pace with the changes in the organization and structure of industries besides accounting for emerging economic activities. The NIC-2004 is the revised version of the earlier classification standard issued in 1998 called the NIC-1998, which was based on ISIC-1990 Rev.3." 20. Lotteries come within the purview of Group 924 class 924(9) and sub- class 924(9)(0) which is in the following terms : "Other recreational activities includes fairs and shows of a recreational nature; management and operation of lotteries (bulk and retail sale of lottery tickets are included under wholesale and retail sale respectively); gambling and betting activities; activities of casinos; booking agency activities in connection with theatrical productions or other entertainment attractions, recreational fishing and other recreational activities n.e.c." It also comes within the purvie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng agent'. This provision thus forbids resale of tickets that have been sold by the State Government. Accordingly, the nature of transaction between the State Government and distributor is not in the nature of sales. The activities of the distributor are that of promotion or marketing of lottery tickets for their clients i.e. the State Governments. Hence, Board decided that the services of distributor fall under the `business auxiliary service' and, therefore, be chargeable to service tax. The value of taxable service shall be taken into account as the total face value of the tickets sold minus (a) the total cost of the tickets paid by the distributor to the State Government and (b) the prize money paid by the distributor. In other words, the value is the mark up between the buying and selling of lottery tickets." 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s become segment of the economic activity. 26. We are informed at the Bar that, in fact, States of Tamil Nadu and Karnataka have barred lottery. 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning, everything which is logically relevant should be admissible." {See also Commissioner of Wealth Tax, Punjab , J K, Chandigarh , Patiala v. Yuvraj Amrinder Singh and Ors. [(1985) 4 SCC 608]} 29. It is, however, also well settled that the statute must be interpreted keeping in view the words used in it. We must notice that in Virtual Soft Systems Ltd. v. Commissioner of Income Tax, Delhi -I [(2007) 9 SCC 665], a Bench of this Court has held : "24. Section 271 of the Act is a penal provision and there are well-established principles for the interpretation of such a penal provision. Such a provision has to be construed strictly and narrowly and not widely or with the object and intention of the legislature." 30. Mr. Parasaran has referred to Commissioner of Income Tax, Bombay Ors. v. Podar Cement Pvt. Ltd. Ors. [(1997) 5 SCC 482] to contend that clarificatory statute would be retrospective in nature. On legal principle, there may not be any quarrel with the said proposition. Therein, however, this court was considering a case where two interpretations of Section 22 of the Income-tax Act were possible. It was opined that if o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year prior to assessment year 2004-2005. It is the well settled legal position that an amendment can be considered to be declaratory and clarificatory only if the statue itself expressly and unequivocally states that it is a declaratory and clarificatory provision. If there is no such clear statement in the statute itself, the amendment will not be considered to be merely declaratory or clarificatory. Even if the statute does contain a statement to the effect that the amendment is declaratory or clarificatory, that is not the end of the matter. The Court will not regard itself as being bound by the said statement made in the statute but will proceed to analyse the nature of the amendment and then conclude whether it is in reality a clarificatory or declaratory provision or whether it is an amendment which is intended to change the law and which applies to future periods." 32. We are also not unmindful of the fact that the said decision has been overruled in Commissioner of Income Tax-I, Ahmedabad v. Gold Coin Health Foods Pvt. Ltd. [(2008) 11 SCALE 497]. A bare perusal of the said decision would, however, show that a Three Judge Bench of this Court noticed that the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However the respondents have urged the point before us. In our view the 1999 Explanation could not apply to assessment years for the simple reason that it had not come into effect then. Prior to introducing the 1999 Explanation, the decision in CIT v. S.G. Pgnatale (supra) was followed in 1989 by a Division Bench of the Gauhati High Court in Commissioner of Income Tax v. Goslino Mario reported in [(2002) 10 SCC 165]. It found that the 1983 Explanation had been given effect from 1.4.1979 whereas the year in question in that case was 1976-77 and said : ". . . it is settled law that assessment has to be made with reference to the law which is in existence at the relevant time. The mere fact that the assessments in question has(sic) somehow remained pending on April 1, 1979, cannot be cogent reason to make the Explanation applicable to the cases of the present assessees. This fortuitous circumstance cannot take away the vested rights of the assessees at hand"." 35. Reverting to the decision of a Kerala High Court in CIT v. S.R. Patton [(1992) 193 ITR 49 (Ker)] wherein Gujarat High Court's judgment was followed, this Court noticed that explanation was not held to be a decla ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
