Finance Act, 1994 – ss.65(19), 65(105)(zzzzn), 65B(1), 65B(34), 65B(44), 65B(51), 66B, 66D(i), 66F, 65B(31A), 67 – Various amendment to the Finance Act, 1994, time to time – Sale of lottery tickets – Levy of service tax – Government of Sikkim and lottery distributors, nature of relationship-principal and principal or principal and agent – Respondents-assessees engaged in the business of the sale of paper and online lottery tickets organised by the Government of Sikkim and entered into agreements with the State – Pursuant to amendment by the Finance Act, 2003, inclusion of new category of taxable services-"Business Auxiliary Service" – Issuance of notices to the respondents by the Service Tax Department, requiring them to register for payment of service tax on the activity which the assessees were/are carrying – Series of litigations wherein the respondents has been challenging the provisions levying service tax introduced through various amendments to the Finance Act from 2010-2016, and the High Court has allowed the petitions – Interference:
Held: In view of the Finance Act, 1994, and the amendments made, interference with the orders passed by the High Court not called for – 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 has failed – There being no agency and no service rendered by the respondents-assessees as an agent to the Government of Sikkim, service tax is not leviable on the transactions between the purchaser of the lottery ticketsrespondents and the Government of Sikkim – Having regard to the terms and conditions of the agreement entered into between the government and the respondents, including the nomenclature used to describe the respondents, the respondents were not an agent of the State Government but purchased the lottery tickets at own risk for the purpose of selling it through stockists, etc. and unsold lottery tickets had to be returned to the State Government in order to avoid misuse of the same – Thus, the relationship was one between a principal and principal and not one between principal and agent – Amendment was made to s.65(105) by insertion of clause (zzzzn) which defined “taxable service”, would 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 – Furthermore, 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 – Such activity of the distributor would not amount to the activity of betting, gambling or lottery – Although a lottery ticket is nothing but an actionable claim, the conduct of a lottery scheme is nothing but a betting and gambling activity – 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 – Constitution of India – Finance Act, 2007 – Finance Act, 2010 – Finance Act, 2012 – Finance Act, 2015 – Finance Act, 2016 – Service Tax Rules, 1994 – r.7C – Lotteries (Regulation) Act, 1998. [Paras 17.3.1, 17.4, 18.1, 18.3, 18.4-18.7, 19]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Nidhi Jain. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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