2017 (3) TMI 1417 - HC - Service Tax

Constitutional validity of amendments made in the FA, 1994 (Service Tax) by the FA, 2016, whereunder the Section 65B was amended, as being ultra vires the Constitution of India under Entry 34 and Entry 62 of List II of the Seventh Schedule of the Constitution of India - lottery - whether the transactions in buying and selling lottery tickets are not liable to Service tax under the provisions of the FA, 1994 as amended by the FA, 2016? - N/N. 18/2016-ST dated 01.03.2016. Held that - it is evident that the service tax was intended on promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any other manner. By the impugned amendment a cosmetic change has been made in the Amendment Act, 2010, as initially the words any person or any other person was used. In 2015, it was modified to the extent that any activity carried out, for a consideration, in relation to or for facilitation of, a transaction in money except an actionable claim excluding the activity carried out (a) by a lottery distributor or selling agent in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any other manner. The lottery distributor or selling agent is a person appointed or authorized by a State for the purpose of some activities. Article 268A, which was incorporated by the Constitution (Eighty-eighth Amendment) Act of 2003, has recently been omitted by the Constitution (One Hundred and First Amendment) Act, 2016. Entry 92C was inserted by the same constitutional amendment, but admittedly never notified, as pleaded by the learned counsel appearing for the parties and the same has also been omitted by the Constitution (One Hundred and First Amendment) Act, 2016. Thus, reliance can be placed on Entry 97 invoking competence to impose service tax. However, Article 268C confers power and competence on the Union-Parliament to levy service tax on the service providers for consideration. Union- Parliament is conferred with the power and competence under Article 268A read with Entry 97, List I (Union List) to impose and levy service tax on other related activities, as aforestated. The impugned amendment brought in Finance Act, 2016 is not unconstitutional. When consideration is unascertainable for the services rendered by a distributor or selling agent, the service tax is not imposable and liable to be set aside. The amendments carried out by the Finance Act, 2016, are not capable to being implemented for imposition and levy of the service tax on the services allegedly provided by the petitioners - petition allowed - decided partly in favor of petitioner.

Issues Involved:
1. Legality and validity of amendments made in the Finance Act, 1994 by the Finance Act, 2016.
2. Imposition of service tax on transactions involving buying and selling of lottery tickets.
3. Competence of Parliament to levy service tax on lottery distributors and selling agents.
4. Interpretation of "service" under Section 65B of the Finance Act, 1994.
5. Validity of Notifications and Circulars issued for service tax on lottery-related activities.

Detailed Analysis:

1. Legality and Validity of Amendments in the Finance Act, 1994:
The petitioners challenged the amendments made in the Finance Act, 1994 by the Finance Act, 2016, arguing that these amendments were ultra vires the Constitution of India under Entry 34 and Entry 62 of List II of the Seventh Schedule. They sought a declaration that transactions involving buying and selling lottery tickets are not liable to service tax under the amended provisions. The court examined the amendments and noted that the Parliament had made several amendments over the years to impose service tax on lottery-related activities. The court concluded that the amendments made by the Finance Act, 2016, were not unconstitutional, as the Parliament had the competence to levy service tax under Article 268A read with Entry 97, List I (Union List).

2. Imposition of Service Tax on Lottery Transactions:
The petitioners contended that the agreements between them and the State Government were outright sales of lottery tickets and not services, thus not liable to service tax. The court referred to previous judgments, including those by the Supreme Court and earlier Division Benches, which held that lottery transactions were excluded from the definition of "service" as they were actionable claims. The court reiterated that the service tax was not on the lottery itself but on related activities such as promotion, marketing, and organizing lotteries.

3. Competence of Parliament to Levy Service Tax:
The respondents argued that the service tax was imposed on the services rendered by lottery distributors or selling agents and not on the lottery itself. They cited previous judgments where the Supreme Court upheld the Parliament's competence to levy service tax under its residuary powers. The court agreed with this position, stating that the Union-Parliament had the power to impose service tax on services rendered for consideration, as per Article 268A and Entry 97, List I.

4. Interpretation of "Service" under Section 65B:
The court examined the definition of "service" under Section 65B of the Finance Act, 1994, as amended. It noted that the definition excluded transactions in money or actionable claims but included activities carried out for consideration in relation to or for facilitation of such transactions. The court found that the amendments aimed to bring activities related to the promotion, marketing, and organizing of lotteries within the ambit of service tax.

5. Validity of Notifications and Circulars:
The petitioners challenged the validity of Notifications No. 18/2016-ST and related circulars that imposed service tax on lottery-related activities. The court held that while the Parliament had the competence to levy service tax, the specific amendments and notifications were not capable of being implemented due to the lack of a clear mechanism to ascertain and compute the service rendered by lottery distributors or selling agents. Consequently, the court quashed the impugned letter dated 10.06.2016, the circular dated 29.02.2016, and Notification No. 18/2016-ST.

Conclusion:
The court allowed the writ petitions partly, holding that the amendments made by the Finance Act, 2016, were not unconstitutional but could not be implemented for the imposition and levy of service tax on the services allegedly provided by the petitioners. The relevant notifications and circulars were quashed.

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