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Informist, Tuesday, Feb. 11, 2025

 

--SC: Centre cannot levy service tax on distributor for organising lottery 

 

NEW DELHI – The Supreme Court on Tuesday held that the Centre cannot levy service tax on distributors for promoting, marketing, organising, or assisting in conducting games of chance, including lottery. The apex court rejected a batch of petitions filed by the Centre against a Sikkim High Court verdict in 2012 which had favoured the distributor. The high court had said that Parliament had the power to levy taxes on any subject matter, including service tax, under the Union List, however it does not have the same competence and jurisdiction under State and Concurrent List. 

 

The Bench of Justices B.V. Nagarathna and Satish Chandra Sharma said the relationship between the Sikkim government and the lottery distributor was that of principal-principal, and not principal to agent. Various clauses of the agreement between distributors and the state government indicated that the sole distributor was acting in his own right when purchasing lottery tickets for onward sales, the bench said.

 

"Although a lottery ticket is nothing but an actionable claim, the conduct of a lottery scheme is nothing but a betting and gambling activity," said the apex court. It is only Entry 62 of the State List which enables the imposition of tax by the state government, said the court.  

 

The case has its genesis in clause (zzzzn) of sub-section (105) of Section 65 of the Finance Act, 1994 as inserted by the Centre in 2010 introducing the activity of "promotion, marketing, organising or in any other manner assisting in organising game of chance, including lottery" as a new category of "taxable service". A bunch of distributors had moved the Sikkim High Court against the Centre's move to levy service tax on the above mentioned activities.

 

The high court had held that the activities of the lottery distributors did not constitute a service and thus were beyond the purview of "taxable service". The court classified such activities as "betting and gambling" under Entry 62, List II to seventh schedule of the Constitution of India, which entails the state legislature alone is competent to levy any tax on such activity. The Centre had challenged this judgement in the apex court.  End

 

Reported by Surya Tripathi

Edited by Tanima Banerjee

 

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