2011 (8) TMI 653 - HC - Service Tax

Constitutional Validity of Levy of Service tax on lotteries promoted and marketed by clients - Held That - The very objective of the amendment which is to get over the decision of the Supreme Court in Martin Lottery Agencies Ltd. s and since the amendment has achieved the objective of levying tax on service rendered in relation to lottery, it has to be upheld. After hearing the arguments of counsel for the petitioners and the Standing Counsel and on going through the later judgment rendered by the Chief Justice of the Sikkim High Court in Writ Petition(C) No.21/2009, we are unable to accept the challenge against the constitutional validity of the amendment.. Marketing of lottery as taxable services - lottery tickets are purchased by the petitioners at discounted price and they in turn sell the same by sharing the discount availed by them to retail dealers. - Held that - Discount or commission received by the petitioners is nothing but consideration for service rendered to the promoter or organiser of the lottery. Moreover without the service rendered by the distributors namely, the lottery tickets will not reach the ultimate customers who are the participants in the draw. Thus liable to Service Tax.

Summary

Issues:
Constitutional validity of the Explanation to Section 65(19)(ii) of the Finance Act 1994 regarding levy of service tax on lotteries marketed by clients.

Detailed Analysis:

1. Background and Introduction of Explanation:
The case involves distributors challenging notices for service tax on lottery sales under the Business Auxiliary Service. The Central Board of Direct Taxes issued a circular allowing service tax on lottery-related services. The Sikkim High Court initially ruled against taxing lottery services, later upheld by the Supreme Court. An explanation to Section 65(19)(ii) was added to include lottery services for tax purposes.

2. Arguments and Contentions:
Petitioners argued that lottery tickets are actionable claims and not goods, thus not subject to service tax. They claimed no service is involved in lottery marketing as they only resell tickets bought at a discount. Respondents contended that the amendment aimed to overrule the Supreme Court's decision and tax lottery services.

3. Interpretation and Decision:
The court rejected the petitioners' argument that lottery tickets are goods, citing the exclusion clause in the Sale of Goods Act. It found that service tax applies to lottery marketing services, as distributors play a crucial role in reaching customers. The court upheld the constitutional validity of the Explanation to levy service tax on lottery services. It noted that petitioners started paying tax under amended provisions from 2010, indicating the service nature of their activities.

4. Conclusion:
The court dismissed the writ petitions, emphasizing that the service rendered by distributors in lottery marketing is taxable under Section 65(105)(zzb) read with the Explanation to Section 65(19)(ii) of the Act. Despite various Supreme Court decisions cited by petitioners, the court found no direct relevance to the specific issue at hand.