2007 (8) TMI 67 - HC - Service Tax

Lottery Business - Status of distributor / selling agent - the essence of the writ petitioner s business venture is that of a middleman, and if it is a middleman s venture, then the activity, properly so called, cannot but be promotion or marketing

Summary

Issues:
Interpretation of service tax provisions under Lotteries (Regulation) Act, 1998 and Finance Act, 1994, and Finance Act, 2003 in relation to the purchase and sale of lottery tickets.

Analysis:
The writ petition concerns a letter from the Superintendent of Central Excise directing the appearance of the petitioner for the ultimate levy of tax under the Lotteries (Regulation) Act, 1998, read with the Service Tax provisions of the Finance Acts. The petitioner, a lottery agency, sought an interim order to halt further proceedings. The petitioner, in business since 1998, purchases Sikkim Lottery tickets in bulk, crucially at a reduced price of Rs. 70 for tickets with a face value of Rs. 100. The Finance Act's Section 65 defines "business auxiliary service," while the Lotteries Act outlines the State Government's role in selling tickets through distributors or selling agents. The petitioner argues that as the tickets become their property post-purchase, no promotion or marketing service is provided, negating service tax liability.

The issue revolves around whether the petitioner, by purchasing tickets at a reduced rate and reselling them, is rendering a promotional or marketing service to the State Government. The court considers the dynamics of the purchase agreement between the petitioner and the State, questioning if the reduced price constitutes a marketing strategy. The judgment contemplates the nature of the petitioner's business as a middleman and its implications on the service tax incidence. The court opines that if the petitioner operates as a middleman, the activity inherently involves promotion or marketing, potentially subjecting it to service tax.

The court refrains from granting an interim order, allowing the Department to proceed with appearances and decisions, indicating that final outcomes will be subject to the writ's result. The judgment emphasizes that both parties are financially stable, thus no immediate interim relief is warranted. The matter is scheduled for further orders on a specified date, maintaining the parties' rights and contentions. The judgment highlights the complexity of the petitioner's role as a middleman in the lottery ticket transactions, raising questions about the promotional nature of the business and its tax implications.