2004 (12) TMI 656 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether retail agents of online lottery tickets are "dealers" under section 2(viii) of the Kerala General Sales Tax Act, 1963.
2. Whether retail agents are liable to take registration under section 13 of the Act.
3. Relationship between the company and the retail agents.
4. Tax liability of the retail agents under section 5(1) of the Act.
5. Applicability of section 5BA of the Act.
6. Whether retail outlets are additional places of business of the company.
7. Alleged discriminatory treatment compared to the Department of Lotteries, State of Kerala.

Detailed Analysis:

1. Definition of "Dealer":
The court examined whether retail agents appointed by the company for the sale of online lottery tickets fall within the definition of "dealer" under section 2(viii) of the Kerala General Sales Tax Act, 1963. The court concluded that the definition is broadly couched and includes any person who carries on the business of buying, selling, supplying, or distributing goods. The agreement between the company and the retailers indicated that the retailers were appointed to sell computerized network lottery tickets, thus classifying them as dealers under the Act.

2. Registration Requirement:
The court addressed whether the retail agents are liable to take registration under section 13 of the Act. It was found that since the turnover of the retail agents exceeded the registrable minimum specified in section 13, they are required to take registration under the Act.

3. Relationship Between Company and Retail Agents:
The court analyzed the nature of the relationship between the company and the retail agents. It was argued that the relationship was that of master and servant; however, the court found that the relationship was more akin to that of a commission agent within the meaning of section 2(viii)(c) of the Act. Retailers conducted sales and received commissions, indicating a principal-agent relationship rather than a master-servant relationship.

4. Tax Liability Under Section 5(1):
The court examined the tax liability of retail agents under section 5(1) of the Act. It was concluded that sales are effected at the retail outlets, and customers purchase tickets from these outlets. Therefore, the retailers are liable to pay tax on the sale of lottery tickets, which would attract tax liability under section 5(1) of the Act.

5. Applicability of Section 5BA:
The court discussed the option available to dealers to pay a license fee in lieu of tax under section 5BA of the Act. It was clarified that section 5BA provides compounding facilities to dealers, allowing them to opt for a license fee per draw instead of the regular tax. However, each dealer has an independent tax liability, and the company's registration does not absolve the retailers of their liability.

6. Retail Outlets as Additional Places of Business:
The court rejected the contention that retail outlets are additional places of business of the company. The terms and conditions of the agreement indicated that retail outlets are independent places of business selected by the retailers, who are responsible for their own advertising, rent, and employees. Thus, retail outlets cannot be regarded as branches or additional places of business of the company.

7. Discriminatory Treatment:
The court addressed the argument of discriminatory treatment compared to the Department of Lotteries, State of Kerala. It was stated that the Department of Lotteries is not exempted from tax, and tax is being collected. The court concluded that this does not absolve the retailers of their tax liability, as they are independent entities and sales take place at their outlets.

Conclusion:
The court found no illegality in the clarifications given by the Commissioner. Retail agents are classified as dealers under the Kerala General Sales Tax Act and are liable to pay tax on the sale of lottery tickets under section 5(1) of the Act. The writ appeal was allowed, and the judgment in W.P.C. No. 28480 of 2004 was set aside.