2009 Supreme(SC) 951

Supreme Court of India
THE HONOURABLE MR. JUSTICE S.B. SINHA & THE HONOURABLE MR. JUSTICE CYRIAC JOSEPH
Union of India & Others
Versus
M/s Martin Lottery Agencies Ltd.
Civil Appeal No. 3239 of 2009 (Arising out of SLP (C) No. 6083 of 2008
Decided on : 05-05-2009

IMPORTANT POINTS
Conduct of business by State is permissible under Article 298 in exercise of executive power under Article 162.
Lottery tickets are not goods, these are actionable claims.
Raising of revenue by the State, by itself cannot amount to rendition of any service.
Explanation to Section 65(19) of Finance Act, 1994 is an attempt to widen tax net. Hence it is neither declaratory nor clarificatory and hence cannot have retrospective operation.
Nomenclature alone is not conclusive in law.

Headnote:(a) Constitution of India – Article 298 – Conduct of business by State – Permissible in exercise of executive power under Article 162. (Para 11)

       (b) Sale of Goods Act, 1930 – Section 2(7) – Lottery tickets are not goods – These are actionable claims. (Para 12)

       (2006) 5 SCC 603; (2008) 8 SCC 681 – Relied upon

       (2005) 4 SCC 241; (1986) 1 SCC 414 – Referred

       (c) Finance Act, 1994 – Section 65(19), clause (i) and (ii) – Lottery is recognised as gambling – Gambling is res extra commercium – Organizing lottery by State – Economic activity to raise revenue – Raising of revenue by the State, by itself cannot amount to rendition of any service. (Para 14, 15, 16)

       1957 SCR 874; (1999) 9 SCC 700 – Relied upon

       (d) Finance Act, 1994 – Section 65(19) – Service provided in respect of the matters envisaged under clause (19) of Section 65 of the Act must be construed strictly – The business or trade must be legitimate – Lottery being res extra commercium may not be legitimate. (Para 18)

       (2008) 4 SCC 649; (2008) 5 SCC 176; AIR 1953 Mad 279; (1888) 32 Law Ed 150 – Referred

       (e) Finance Act, 1994 – Section 65(19)(i) – Lottery – Comes within purview of Group 924 class 924(9) and sub-class 924(9)(0) of NSC 2004 – Also comes within purview of section 4 of Lotteries (Regulation) Act, 1998 – Lottery is also brought within the purview of the terms `entertainment or `amusement as provided for in Entries 34 and 62 of List II of the Seventh Schedule of the Constitution of India – As such it may come within the purview of service – Service rendered by State on its activities permissible u/s 65(19)(ii) are chargeable – Not otherwise. (Para 21)

       (f) Finance Act, 1994 – Section 65(19), explanation – Whether declaratory or clarificatory in nature – Effect of the explanation is to widen the tax net – As such it cannot be held to be retrospective. (Para 24, 27, 36)

       (2005) 12 SCC 717 – Relied upon

       (1997) 5 SCC 482; (1968) 3 SCR 623; (2005) 3 SCC 73; (2007) 9 SCC 665; (2008) 11 SCALE 497 – Referred

       (g) Interpretation of statute – Finance Act, 1994, Section 65(19) Explanation – Begins with ‘for removal of doubts’ – Provision was not found to be vague or ambiguous by a court of law requiring removal of doubts – It is also not that the executive requested for clarification finding the law ambiguous – Nomenclature not conclusive in law. (Para 24)

       (h) Interpretation of statute – External aids – Speech of finance Minister in the Parliament – May be a valid tool – However a statute must be interpreted keeping in view the words used in it. (Para 28, 29)

       (1981) 4 SCC 173; (1985) 4 SCC 608; (2007) 9 SCC 665 – Relied upon

       Facts of the case:

       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 is the question involved in this appeal.

       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 in turn sell the same to the ultimate participants of the draw.

       The CBEC opined that the nature of transactions between the distributor and the State Government do not constitute a sale. However, it was concluded that the activities of the distributor are that of promotion or marketing of lottery tickets for their client (i.e. the State Governments) and, thus, would be exigible to service tax under the heading `business auxiliary service.

       Therefore the Superintendent of Central Excise, Gangtok Range, Gangtok directed the respondent to obtain registration and pay service tax under the heading `business auxiliary service in terms of the provisions of the said Act.

       The legality and/or validity of the said notice was questioned before the High Court of Sikkim by the respondent by way of a Writ Petition.

       The Chief Justice of the High Court made certain observations to the effect that the activities undertaken by respondent cannot but be promotion or marketing.

       The writ petition was allowed.

       Finding of the Court:

       Impugned judgment does not warrant interference.

       Result:

       Appeal dismissed with cost.