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SUPREME COURT OF INDIA
B.V. NAGARATHNA, N.KOTISWAR SINGH, JJ.
K. Arumugam – Appellant
VERSUS
Union of India & Others Etc. – Respondents
Civil Appeal Nos. 2842-2848 OF 2012 With Civil Appeal No. 2781 of 2012, Civil Appeal No. 2782 of 2012, Civil Appeal No. 2783 of 2012, Civil Appeal No. 2841 of 2012, Civil Appeal No. 2829-2840 of 2012, And Civil Appeal No. of 2024 (Arising out of SLP (C) No. 21584 of 2012)
Decided On : 08-08-2024
Finance Act, 1994 – Section 65(50) – Sales of Goods Act, 1930 – Section 2(7) – Constitution of India – Article 246 – Lottery business – Exigibility to Service Tax – Sale of lottery tickets by State is a privileged activity by itself and not rendering of a service for which assessees are rendering promotion or marketing service – There is no activity of promotion or marketing of a service on behalf of State – Outright purchase of lottery tickets from promoters of State or Directorate of Lotteries, is not a service in relation to promotion or marketing of service provided by client, i.e., State conducting lottery – Conduct of lottery is a revenue generating activity by a State or any other entity in field of actionable claims – Client, i.e., State is not engaging in an activity of service while dealing with business of lottery – Mere insertion of an explanation cannot make an activity a taxable service when it is not covered under main provision – Conducting a lottery which is a game of chance is ex facie a privilege and an activity conducted by State and not a service being rendered by State – Once lottery tickets are sold by Directorate of Lotteries, a Department of State, there is transfer of title of lottery tickets to appellants, who, as owners of lottery tickets, in turn sell them to stockists and others – There is no promotion of business of State as its agent – Relationship between State and appellants is on a Principal to Principal basis – Impugned judgments of High Courts set aside – Having regard to mandate of Article 265 of Constitution of India, appeals allowed with all consequential reliefs to appellants. (Paras 6.9, 6.10, 7, 8, 9 and 10)
Facts of the case:
Questions for consideration are: –
1. Whether activity of appellants-assessees doing Lottery business would attract service tax within scope and ambit of Section 65(19)(ii) read with Section 65(105)(zzb) of Finance Act, 1994? If not, what relief(s) appellants are entitled to?
2. What Order?
Findings of Court:
If any representations are made seeking refund of amounts paid, same shall be considered expeditiously by the concerned departments of respondents.
Result : Appeals allowed.
JUDGMENT
Leave granted in SLP (Civil) No.21584 of 2012.
2. These appeals are filed by the assessees against the judgments of the High Courts of Sikkim and Kerala dated 03.07.2010 and 19.08.2011 respectively.
3. In K. Arumugam vs. Union of India, C.A. No. 2842-2848 of 2012, the facts are that the appellant is registered with the Directorate of State Lotteries in Thiruvananthapuram and has purchased Kerala State Lotteries from the District Lottery Offices and other States' lotteries in bulk from registered promoters at a discounted rate. The appellant contends that this purchase was made on an outright sale basis, meaning, they bought all tickets in bulk with no return policy ("all sold basis") and subsequently sold them to retailers, also on an outright sale basis. A profit was made from the difference between the amount received from retailers and the amount paid to the State Government or registered promoters. The sale of lotteries in Kerala was regulated by the Kerala State Lotteries and Online Lotteries (Regulation) Rules, 2003 framed under Section 12(3) of the Lotteries Regulation Act, 1998 and the Kerala Tax on Paper Lotteries Act, 2005.
3.1 Appellant was directed by the Superintendent of Central Excise, Service Tax Range, Palakkad Division, Mettuppalayam Street, Palakkad-1, Kerala, to obtain registration and pay service tax under the heading 'business auxiliary service' in terms of the provisions of the Finance Act, 1994. Subsequently, the appellants were served notices by the Assistant Commissioner of Central Excise demanding details of their lottery purchase since the year 2003. In some instances, searches were conducted and items, including hard discs, were seized.
3.2 As a result, the appellant approached the Kerala High Court challenging the constitutionality of the Explanation added to Section 65 (19) (ii) of the Finance Act, 1994 and all consequential steps taken in pursuance thereto. The appellant argued that the profit made from the difference between the purchase price and the face value of the tickets did not constitute a ‘taxable service’ under the relevant provision. It was argued that the activities did not constitute a ‘taxable service’. It was also conjunctively argued that the Explanation inserted in the year 2008 introduced a new concept inconsistent with the main provision and that no service tax could be imposed based on this Court's ruling in Sunrise Associates vs. Govt. of NCT of Delhi, (2006) 5 SCC 603 (“Sunrise Associates”) wherein it was held that lottery tickets are not goods but actionable claims. However, the High Court of Kerala dismissed the petitions on 19.08.2011. Aggrieved by the aforesaid judgment, present appeals are preferred.
3.3 In the case of Tashi Delek Gaming Sol. Pvt. Ltd. & Anr vs. Union of India & Ors., C.A. No.2781 of 2012, the appellant has impugned the judgment of the Sikkim High Court, which dismissed the appellant’s writ petition challenging the constitutional validity of the Explanation to Section 65(19)(ii) introduced by the Finance Act, 2008 with effect from 16.05.2008. The appellant in this case was appointed as the exclusive statutory marketing agent by the State of Sikkim on 24.08.2001, under Section 4(c) of the Lotteries Regulation Act, 1998, for the sale of online lottery tickets organized by the said State. According to the agreement between the appellant and the State of Sikkim, the appellant purchased lottery tickets in bulk from the Directorate of Lotteries at a price lower than the maximum retail price (MRP). The appellant then sold the tickets to distributors, adding a margin of 1%, who in turn sold the tickets to retailers, who ultimately sold them to the public at the MRP.
3.4 A letter dated 07.07.2009 was issued to the appellant herein by the Office of the Superintendent of Central Excise, Gangtok Range, Gangtok, Government of India requesting the appellant to submit an application Form ST-1 seeking service tax registration under the category "business auxiliary
The court ruled that lottery distributors operate on a principal to principal basis, exempting them from service tax under the Finance Act, 1994.
A sale of lottery tickets at reduced prices does not equate to commission payment under Section 194G of the Income Tax Act, making tax deductions inapplicable.
Provision has to conform to the statute under which the Rule is made and exceeding the limits of the authority conferred by the enabling Act is one of those circumstances where the Rule could be stru....
State legislative competence prevails over Union taxation on amusement activities per Entries 62 and 97 of List I and II of the Constitution; imposition of service tax deemed unconstitutional.
(1) Purchaser of a lottery ticket is a potential user and a service is being made available by selling agents in context of Competition Act, 2002.(2) Inclusive mentioning does not inhibit larger expa....
Power of State Government to make rules - If a State Government opinion that Organising State or distributors or selling agents are organising lotteries in violation of provisions of Act and these ru....
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