1. Dispute over service tax levy on lottery distributors under Finance Act, 1994, focusing on the legal nature of the relationship between the State and distributors. (Para 2 , 3 , 4 , 5 , 6 )
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2025 Supreme(SC) 306
SUPREME COURT OF INDIA
B.V. NAGARATHNA, NONGMEIKAPAM KOTISWAR SINGH, JJ.
Union Of India & Others - Appellant
Versus
Future Gaming Solutions Pvt. Ltd. & ANOTHER ETC. - Respondent
Civil Appeal Nos. 4289-4290 of 2013 With Civil Appeal Nos.9506-9507 of 2013 Civil Appeal Nos. 2172-2173 of 2016 Civil Appeal No.16118 of 2017, Civil Appeal No. of 2025 (Arising out of SLP (C) No.18565 of 2014), Civil Appeal No. of 2025 (Arising out of SLP (C) No.30629 of 2014), Civil Appeal No. of 2025 (Arising out of SLP (C) No.14111 of 2015), Civil Appeal No. of 2025 (Arising out of SLP (C) No.19200 of 2017), Civil Appeal No. of 2025(Arising out of SLP (C) No. 23945 of 2017)
Decided on : 11-02-2025
Important Points
The court ruled that lottery distributors operate on a principal to principal basis, exempting them from service tax under the Finance Act, 1994.
Subject
Taxation Law - Service Tax
Act Referred
CONSTITUTION OF INDIA: Art.246, Art.248, Art.366(29)(a), Entry.62, List.II
CONTRACT ACT: S.182
FINANCE ACT: S.107(g), S.111, S.143(c), S.65(105)(z)(z)(z)(z)(n), S.66(d), S.67, S.76(a)(1), S.90(3)(ii)
FINANCE RULES: R.6(7)(c)
GUJARAT STAMPS SUPPLY AND SALES RULES: R.24(2)(b)
INCOME TAX ACT: S.194(g)
LOTTERIES REGULATION ACT: S.4
LOTTERIES REGULATION RULES: R.2
SERVICE TAX RULES: R.7(c)
TRANSFER OF PROPERTY ACT: S.3
CONTRACT ACT: S.182
FINANCE ACT: S.107(g), S.111, S.143(c), S.65(105)(z)(z)(z)(z)(n), S.66(d), S.67, S.76(a)(1), S.90(3)(ii)
FINANCE RULES: R.6(7)(c)
GUJARAT STAMPS SUPPLY AND SALES RULES: R.24(2)(b)
INCOME TAX ACT: S.194(g)
LOTTERIES REGULATION ACT: S.4
LOTTERIES REGULATION RULES: R.2
SERVICE TAX RULES: R.7(c)
TRANSFER OF PROPERTY ACT: S.3
Headnote
(A) Finance Act, 1994 - Sections 65 and 66 - Service Tax - The court examined the nature of the relationship between the State of Sikkim and lottery distributors, concluding it to be one of principal to principal rather than principal and agent, thus exempting the distributors from service tax. (Paras 18.1, 18.2, 18.3, 18.4, 18.5, 18.6)
(B) Constitutional Law - Article 246 - The power to levy taxes on lotteries is reserved for the State Legislature under Entry 62 of List II, and cannot be imposed by Parliament under its residuary powers. (Paras 18.4, 18.5)
Facts of the case:
The case involves multiple appeals against the High Court's decision that lottery distributors are not liable for service tax as they operate on a principal to principal basis, purchasing tickets from the State for resale. (Paras 2.1, 3.9)
Findings of Court:
The court upheld the High Court's ruling that the relationship is not one of agency, thus service tax cannot be levied on the distributors. (Paras 18.1, 18.2)
Issues: The primary issue was whether the relationship between the State and lottery distributors constituted an agency relationship, which would impose service tax obligations. (Paras 10a, 10b)
Ratio Decidendi: The court reasoned that the agreements and the nature of transactions indicated a principal to principal relationship, exempting the distributors from service tax. (Paras 18.1, 18.2)
Result: Appeals dismissed; the High Court's decision upheld. (Para 20)
(B) Constitutional Law - Article 246 - The power to levy taxes on lotteries is reserved for the State Legislature under Entry 62 of List II, and cannot be imposed by Parliament under its residuary powers. (Paras 18.4, 18.5)
Facts of the case:
The case involves multiple appeals against the High Court's decision that lottery distributors are not liable for service tax as they operate on a principal to principal basis, purchasing tickets from the State for resale. (Paras 2.1, 3.9)
Findings of Court:
The court upheld the High Court's ruling that the relationship is not one of agency, thus service tax cannot be levied on the distributors. (Paras 18.1, 18.2)
Issues: The primary issue was whether the relationship between the State and lottery distributors constituted an agency relationship, which would impose service tax obligations. (Paras 10a, 10b)
Ratio Decidendi: The court reasoned that the agreements and the nature of transactions indicated a principal to principal relationship, exempting the distributors from service tax. (Paras 18.1, 18.2)
Result: Appeals dismissed; the High Court's decision upheld. (Para 20)
Legal Category Hierarchy
Advocates appeared:
For the Parties : Mr. V. C. Bharathi, Adv. Mr. Gurmeet Singh Makker, AOR Mr. B. Krishna Prasad, AOR Mr. Raj Bahadur Yadav, AOR Ms. Rohini Musa, AOR Mr. Mukesh Kumar Maroria, AOR Mr. A.R. Madhav Rao, Adv. Mr. Arjun Garg, AOR Ms. Kriti Gupta, Adv. Ms. Sagun Srivastava, Adv. Mr. Saaransh Shukla, Adv. Mr. Mukunda Rao Angara , AOR Mr. A R Madhav Rao, Adv. Mr. Krishna Rao, Adv. Ms. Shiwani Tushir, Adv. Ms. Rohini Musa, AOR M/S. Arputham Aruna And Co, AOR Mr. Sameer Abhyankar, AOR Mr. Aakash Thakur, Adv. Mr. Rahul Kumar, Adv. Ms. Ayushi Bansal, Adv. Mr. Krishna Rastogi, Adv.
For the Parties : Mr. V. C. Bharathi, Adv. Mr. Gurmeet Singh Makker, AOR Mr. B. Krishna Prasad, AOR Mr. Raj Bahadur Yadav, AOR Ms. Rohini Musa, AOR Mr. Mukesh Kumar Maroria, AOR Mr. A.R. Madhav Rao, Adv. Mr. Arjun Garg, AOR Ms. Kriti Gupta, Adv. Ms. Sagun Srivastava, Adv. Mr. Saaransh Shukla, Adv. Mr. Mukunda Rao Angara , AOR Mr. A R Madhav Rao, Adv. Mr. Krishna Rao, Adv. Ms. Shiwani Tushir, Adv. Ms. Rohini Musa, AOR M/S. Arputham Aruna And Co, AOR Mr. Sameer Abhyankar, AOR Mr. Aakash Thakur, Adv. Mr. Rahul Kumar, Adv. Ms. Ayushi Bansal, Adv. Mr. Krishna Rastogi, Adv.
Table of Contents
2. Revenue asserts an agency relationship based on statutory mandates; assessees contend a principal-to-principal relationship and lack of Union legislative competence to tax gambling. (Para 7 , 8 , 9 )
3. Appeals filed by the Union of India dismissed; High Court judgments affirming the non-levy of service tax on lottery distributors upheld. (Para 20 )
4. Does the Union Parliament have the power to levy service tax on lottery activities under its residuary powers?
No. Lotteries are forms of gambling. The power to tax betting and gambling is reserved exclusively for State Legislatures under Entry 62 of List II of the Seventh Schedule. (Para 12 )
JUDGMENT :
NAGARATHNA, J.
| INDEX |
| History of this controversy |
| 2012 Amendment |
| 2015 Amendment |
| 2016 Amendment |
| Submissions before this Court |
| Points for Consideration |
| Relevant constitutional provisions |
| Relevant Case Law on lotteries |
| B.R. Enterprises |
| Sunrise Associates |
| State of Karnataka |
| K. Arumugam |
| Legal Framework |
| Agreements under consideration |
| Paper Lotteries |
| Online Computerised Agreement |
| Agency |
| Case Law |
| Agreements |
| Controversy between the Parties |
Leave granted in SLP (C) No.18565 of 2014; SLP (C) No.30629 of 2014; SLP (C) No.14111 of 2015; SLP (C) No.19200 of 2017 and SLP (C) No.23945 of 2017.
2. This batch of cases assail various orders of the High Court of Sikkim passed in several writ petitions which were filed by the respondent-assesses. The appellant is the Union of India in all these cases except in SLP (C) No.19200 of 2017. For immediate reference, the following table which has been provided by learned counsel for the Union of India would indicate the details:
| Sl. No. | Case No(s). | Name of the Assessee(s) | Impugned Judgment & Order Dated | Amendment Year |
| 1 | C.A. NOS.4289- 4290/2013 | 1. Future Gaming Solutions Pvt. Ltd. 2. Summit Online Trade Solutions Pvt. Ltd | 29.11.2012 | 2010 |
| 2 | C.A.NOS. 9506- 9507/2013 | 1. Summit Online Trade Solutions Pvt. Ltd. 2. Future Gaming Solutions India Pvt. Ltd. | 10.05.2013 | 2010 |
| 3 | SLP(C) No. 18565/2014 | Future Gaming Solutions India Pvt. Ltd. | 24.09.2013 | 2012 |
| 4 | SLP(C) No. 30629/2014 | Summit Online Trade Solutions Private Limited | 13.05.2014 | 2012 |
| 5 | SLP(C) No. 14111/2015 | Tashi De Lek Gambling Solutions Pvt. Ltd. | 15.07.2014 | 2012 |
| 6 | C.A. NOS.2172- 2173/2016 | 1. Future Gaming & Hotel Services Pvt. Ltd. 2. Summit Online Trade Solutions Pvt. Ltd. | 14.10.2015 | 2015 |
| 7 | SLP(C) No. 19200/2017 | Future Gaming & Hotel Services (P) Ltd. | 23.03.2017 | 2016 |
| 8 | SLP(C) No. 23945/2017 | Summit Online Trade Solutions (P) Ltd. | 23.03.2017 | 2016 |
| 9 | C.A. No. 16118/2017 | Future Gaming & Hotel Services (P) Ltd. | 23.03.2017 | 2016 |
2.1 The petitioners before the High Court (respondents-assessees herein) are companies incorporated as private limited companies under the Companies Act, 1956. The respondents-assessees herein are engaged in the business of the sale of paper and online lottery tickets organised by the Government of Sikkim. They entered into respective agreements with the State of Sikkim.
2.2 Since these cases assail the amendments made to the provisions of the Finance Act, 1994 from time to time commencing from the year 2012, the factual backdrop of these cases shall be in accordance with the amendments made to the Act and shall be stated chronologically.
History of this controversy:
3. The Parliament introduced service tax through the Finance Act, 1994 under Chapter V, which took effect on 01.07.1994. Later, through the Finance Act, 2003, the Finance Act,1994 was amended to include a new category of taxable services, namely "Business Auxiliary Service," under sub-section (19) of Section 65, effective from 01.07.2003. Pursuant to this amendment, the Service Tax Department issued notices to the respondents-assessees herein, under the amended Finance Act in 2007, requiring them to register under the said Act for payment of service tax.
3.1 Being aggrieved, the respondents-assessees herein approached the High Court in W.P. (C) No.19 of 2007, titled Martin Lottery Agencies Ltd. vs. Union of India , challenging the levy of service tax upon the sale of lottery tickets. Vide judgment dated 18.09.2007, the High Court allowed the writ petition filed by the respondents-assessees herein declaring that service tax was not p
