2013 (11) TMI 1003 - HC - Service Tax

Constitutional validity of levy of service tax on promotion, marketing, organising and assisting in organising games of chance including lottery services under negative list - Notification No.36/2012-ST dated 20-06-2012 - Held that - (i) In the light of Sub-Section (1) to Section 65B read with Sub-Section (44) thereof lottery is excluded from the definition of service being actionable claim ; Even under Sub-Section (34) of Section 65B read with Sections 66B and 66D lottery stands excluded from the purview of service tax under the Finance Act, 2012 as being one in the negative list ; The activity of the Petitioner comprising of promotions, organising, reselling or any other manner assisting in arranging of lottery tickets of the State Lotteries does not establish the relationship of a principal or an agent but rather that of a buyer and a seller and, on principal to principal basis in view of the nature of the transaction consisting of bulk purchases of lottery tickets by the Petitioner from the State Government on full payment on a discounted price as a natural business transaction and, other related features like there being no privity of contract between the State Government and the stockists, agents, resellers under the Petitioner. The impugned letter C. No.V(3)7/ST/FGSIPvt Ltd/GTK/2009/295 dated 06-07-2012 does not have the sanction and authority of either the Constitution or the law as there is no provision anywhere for imposing of service tax on lottery and the action of the Respondents to impose such tax on the Petitioner on the basis of Notification No.36/2012-ST dated 20-06-2012 and the Service Tax Rules is ultra vires the very provisions of the Finance Act being in excess of the powers vested therein. Transactions in lottery tickets are not liable to service tax under the provisions of the Finance Act, 1994, as amended by the Finance Act, 2012. - Decided in favor of assessee.

Issues Involved:
1. Jurisdiction of Respondents to demand service tax.
2. Legality of enforcing Finance Act, 1994 (as amended by Finance Act, 2012) on the Petitioner.
3. Whether the sale of lottery tickets constitutes a 'service'.
4. Legislative competence of Parliament to pass a law on lottery tickets.
5. Whether the transaction between the Petitioner and the Government of Sikkim is one of sale and purchase or a service.

Issue-wise Analysis:

1. Jurisdiction of Respondents to Demand Service Tax:
The Petitioner challenged the jurisdiction of Respondents No.1 to 3 in demanding service tax, asserting that the Finance Act, 1994, as amended by the Finance Act, 2012, excludes 'lottery' and 'transaction in actionable claim' from the purview of service tax. The Court noted that the Finance Act, 2012, introduced a negative list approach, specifying services not liable for service tax, which includes 'betting, gambling or lottery' under Section 66D.

2. Legality of Enforcing Finance Act, 1994 (as Amended by Finance Act, 2012) on the Petitioner:
The Court examined the legality of enforcing the amended Finance Act on the Petitioner. The Petitioner argued that their activity of selling lottery tickets is not a 'taxable service' as defined under the Act. The Court referred to the decision in Sunrise Associates vs. Govt. of NCT of Delhi, which held that lottery tickets are 'actionable claims' and thus excluded from the definition of 'service'.

3. Whether the Sale of Lottery Tickets Constitutes a 'Service':
The Petitioner contended that their transaction with the Government of Sikkim is one of sale and purchase, not rendering any service. The Court agreed, stating that the Petitioner buys lottery tickets in bulk and resells them, which is a transaction of sale and purchase, not a service. The Court also noted that the Finance Act, 2012, excludes 'transaction in actionable claim' from the definition of 'service'.

4. Legislative Competence of Parliament to Pass a Law on Lottery Tickets:
The Petitioner argued that the imposition of service tax on lottery tickets by a Central Legislation is unconstitutional, as 'Betting and gambling' and 'Taxes on luxuries, including taxes on entertainments, amusements, betting, and gambling' fall under the State Legislature's domain. The Court upheld this view, noting that the power to tax lotteries is inherent in the expression 'betting and gambling' under Entry 62 of List II of the Seventh Schedule to the Constitution.

5. Whether the Transaction Between the Petitioner and the Government of Sikkim is One of Sale and Purchase or a Service:
The Court examined the agreement between the Petitioner and the Government of Sikkim, concluding that the relationship is that of a buyer and a seller on a principal-to-principal basis. The Petitioner purchases lottery tickets at a discounted price and resells them, earning a profit margin, which is a normal trade practice. The Court found no element of service in this transaction.

Conclusion:
The Court declared that the transactions in lottery tickets are not liable to service tax under the provisions of the Finance Act, 1994, as amended by the Finance Act, 2012. Consequently, the impugned letter demanding service tax from the Petitioner was quashed. The Writ Petition was allowed, and no order as to costs was made.

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