No service tax leviable on transactions between purchaser of lottery tickets and Government of Sikkim – Supreme Court
In a recent judgment, Hon’ble Supreme Court has held that there being no agency and no service rendered by the sellers/distributors as an agent to the Government of Sikkim, service tax was not leviable on the transactions between the purchaser of the lottery tickets and the Government of Sikkim
ABCAUS Case Law Citation:
4410 (2025) (02) abcaus.in SC
In the instant case, the Union Government had challenged the order of the Hon’ble Sikkim High Court in holding that no service tax was leviable on purchase of lottery tickets by sole distributor or purchaser of lottery tickets.
The respondents-assessees were engaged in the business of the sale of paper and online lottery tickets organised by the Government of Sikkim. There have been amendments to the provisions of the Finance Act, 1994 from time to time from 1994 to 2016 to bring the sale of lottery tickets to the net of service tax. However, the Hon’ble High Court consistently allowed the Writ Petitions of the respondent assessees holding that
In 2015 the Hon’ble High Court held that Union-Parliament lacks competence to impose service tax and the concerned amendments were held as ultra vires to the Constitution of India. It was further held There is no mechanism to ascertain and compute the service rendered by a person for promoting, marketing, selling or facilitating in organizing a lottery of any kind, in any manner, organized by such State in accordance with the provisions of the Lotteries (Regulation) Act, 1998.
The Hon’ble Supreme Court observed that in 2015, amendment was made to the Finance Act, 1994 by substituting Explanation 2 in clause (44) of Section 65B, wherein the expression “transaction in money or actionable claim” was defined to not include, inter alia, any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim including the activity carried out, inter alia, by a lottery distributor or selling agent in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing of lottery of any kind in any other manner. The expression “lottery distributor or selling agent” was defined by inserting clause (31A) to Section 65B to mean a person appointed or authorized by a State for the purposes of promoting, marketing, selling or facilitating in organizing lottery of any kind, in any manner, organized by such State in accordance with the provisions of the Lotteries (Regulation) Act, 1998. Since “betting, gambling or lottery” was included in the Negative List, an Explanation was inserted to Section 66D(i) to say that the said expression “betting, gambling or lottery” shall not include the activity specified in Explanation 2 to clause (44) of Section 65B. Thus, the intent of the Parliament was that any transaction in an actionable claim (lottery being an actionable claim) would not include an activity carried out for the distribution of lottery by the distributor. In other words, such activity of the distributor would not amount to the activity of betting, gambling or lottery.
The Hon’ble Supreme Court opined that the above meaning could be attributed to the activity of the distributor involved in the selling of lottery or facilitating or organizing of lottery in any manner. The expression “betting, gambling or lottery” in the Explanation to Section 66D(i) has to be given its true intent and meaning as conducting a lottery is nothing but an activity coming within the scope of betting and gambling. This is by the application of the principle of noscitur a sociis where the expression “lottery” takes its meaning from “betting and gambling”. Although a lottery ticket is nothing but an actionable claim, the conduct of a lottery scheme is nothing but a betting and gambling activity. Therefore, it is only Entry 62 – List II which enables the imposition of tax by the State Government. The activity of betting and gambling which includes conducting of a lottery is regulated under Entry 34 – List II, with Entry 62 – List II being the taxation entry.
The Hon’ble Supreme Court observed that at each stage, the amendments made to the Finance Act, 1994 (section 65B), in order to impose service tax on the sole distributor/purchaser of the lottery tickets were held to be invalid. The Hon’ble Supreme Court opined that the amendment made in no way detract from the substance of the relationship between the State Government and the sole distributor or purchaser of the 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 as an agent to the Government of Sikkim, service tax was not leviable on the transactions between the purchaser of the lottery tickets and the Government of Sikkim.
Accordingly, appeals of the Union Govt. were dismissed.
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