NEW DELHI: Supreme Court on Tuesday ruled that the Centre cannot impose service tax on sale of lotteries as the lottery business comes under the State List.
A bench of Justices B V Nagarathna and N K Singh said service tax was not leviable on transactions between the purchaser of lottery tickets and the state govt and upheld Sikkim High Court’s order which said all activities – from publishing of lottery tickets to participating in the game of chance, declaration of draw and even distribution of prize to the winner – fell within the purview of the expression ‘betting and gambling’, coming within the exclusive domain of Entry 62 – List II of the Seventh Schedule of the Constitution.
The court passed the order on an appeal filed by the Centre claiming the right to levy service tax on lottery transactions. Examining various amendments made in the Finance Act, the bench said, “We find that at each stage, the amendments made to the Finance Act, 1994, in order to impose service tax on the sole distributor/purchaser of the lottery tickets (respondents-assessees herein) have been unsuccessful. We have reasoned that the amendment to the said definition would in no way detract from the substance of the relationship between the state government and the sole distributor or purchaser of lottery tickets which is one of principal-to-principal and not of principal-agent. There being no agency and no service rendered by the respondents-assessees herein as an agent to the government of Sikkim, service tax is not leviable on the transactions between the purchaser of lottery tickets (respondents-assessees herein) and the government of Sikkim.”
The bench said detailed analysis of the relevant provisions of the Finance Act, 1994, and amendments made thereto in light of the clauses of the agreements highlighted during the course of submissions, as well as the judgments of this court “would not persuade us to take a different view from what Sikkim High Court has taken”. “In view of the aforesaid discussion, we find no merit in the appeals filed by the Union of India and others,” it said.
The court noted that there was no Entry in any of the Lists of the Seventh Schedule specifically provided for levying taxes on lotteries and the power to enact laws for taxing lotteries must be understood as inherent within the expressions ‘betting and gambling’, as lottery activities fell within this category which is a state subject.
The HC had held that the lottery was organised by the state govt through its various stockists etc but could not be construed to be a service rendered to the state govt and the question of service tax did not arise.
