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TMI Blog2024 (9) TMI 182X X X X Extracts X X X X X X X X Extracts X X X X ..... essly excludes actionable claims as well as money - This Court in Sunrise Associates [ 2006 (4) TMI 118 - SUPREME COURT ] has held that lottery tickets are actionable claims. Therefore, as lottery tickets would not come within the meaning of the expression goods under clause (7) of Section 2 of the Sale of Goods Act, 1930, they would also not come within the scope and ambit of clause (50) of Section 65 of the Finance Act, 1994. The conduct of lottery is a revenue generating activity by a State or any other entity in the field of actionable claims. The client, i.e., the State is not engaging in an activity of service while dealing with the business of lottery. Explanation to subclause (ii) of Clause 19 of Section 65 of the Finance Act, 1994 cannot bring within sub-clause (ii) by assuming an activity which was initially sought to be covered under sub-clause (i) thereof but could not be by virtue of the definition of goods under the very same Act read with Section 2(7) of the Sale of Goods Act, 1930. The mere insertion of an explanation cannot make an activity a taxable service when it is not covered under the main provision (which has to be read into the said subclause by virtue of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... OR Mr. Raj Bahadur Yadav, AOR Ms. Usha Nandini V., AOR Mr. Biju P. Raman, Adv. Mr. John Thomas Arakal, Adv. Mr. Gautam Narayan, AOR Ms. Asmita Singh, Adv. Mr. Anirudh Anand, Adv. Mr. Tushar Nair, Adv. Mr. Vikramjit Banerji, A.S.G. Mr. Arijit Prasad, Sr. Adv. Mrs. Nisha Bagchi, Adv. Mr. Mukesh Kumar Maroria, AOR Mr. Shubhendu Anand, Adv. Mr. Meru Sagar Samantaray, Adv. Mr. Annirudh Sharma Ii, Adv. Mr. G. S. Makker, Adv. Mr. Mukunda Rao Angara , AOR Ms. Rohini Musa, AOR Mr. B. Krishna Prasad, AOR Mr. Raghvendra Kumar, AOR Mr. Anand Kumar Dubey, Adv. Mr. Nishant Verma, Adv. Mr. Simanta Kumar, Adv. Mr. Maneesh Pathak, Adv. Ms. Harsha Sharma, Adv. Mr. Devvrat Singh, Adv. Mr. Jainendra Kumar, Adv. Mr. Varun Singh, Adv. Mr. Sameer Abhyankar, AOR Mr. Kushagra Aman, Adv. Mr. Aakash Thakur, Adv. Mr. Rahul Kumar, Adv. Ms. Ayushi Bansal, Adv. M/S. Arputham Aruna And Co, AOR Mr. C. K. Sasi, AOR Ms. Meena K Poulose, Adv. Ms. Anupriya, Adv JUDGMENT Leave granted in SLP (Civil) No. 21584 of 2012. 2. These appeals are filed by the assessees against the judgments of the High Courts of Sikkim and Kerala dated 03.07.2010 and 19.08.2011 respectively. 3. In K. Arumugam vs. Union of India, C.A. No. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions on 19.08.2011. Aggrieved by the aforesaid judgment, present appeals are preferred. 3.3 In the case of Tashi Delek Gaming Sol. Pvt. Ltd. & Anr vs. Union of India & Ors., C.A. No.2781 of 2012, the appellant has impugned the judgment of the Sikkim High Court, which dismissed the appellant's writ petition challenging the constitutional validity of the Explanation to Section 65(19)(ii) introduced by the Finance Act, 2008 with effect from 16.05.2008. The appellant in this case was appointed as the exclusive statutory marketing agent by the State of Sikkim on 24.08.2001, under Section 4(c) of the Lotteries Regulation Act, 1998, for the sale of online lottery tickets organized by the said State. According to the agreement between the appellant and the State of Sikkim, the appellant purchased lottery tickets in bulk from the Directorate of Lotteries at a price lower than the maximum retail price (MRP). The appellant then sold the tickets to distributors, adding a margin of 1%, who in turn sold the tickets to retailers, who ultimately sold them to the public at the MRP. 3.4 A letter dated 07.07.2009 was issued to the appellant herein by the Office of the Superintendent of Central Exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various other States or in the States where the lottery business was organized, through stockists and distributors. 3.8 The Central Government sought to levy service tax on the premise that the activity which the appellants were/are carrying on was a business auxiliary service within the definition of Section 65(19) of the Finance Act, 1994 and therefore, chargeable to service tax. The same was resisted by these appellants by filing writ petitions before the High Courts. 3.9 Both the High Courts of Sikkim as well as Kerala have held against these appellants and have opined that service tax is leviable on their activity under the nomenclature of business auxiliary service. Hence these appeals. 4. We have heard learned senior counsel Sri S. Ganesh and learned counsel Sri A. R. Madhav Rao for the appellants and learned senior counsel Sri Arijit Prasad and learned counsel for the respondent - Union of India and perused the material on record. Points for consideration: 5. Having heard learned counsel for the respective sides, the following questions arise for our consideration: 1. Whether the activity of the appellants - assessees would attract service tax within the scope and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such power is not included in either the Concurrent List or the State List. 6.3 The Finance Act, 1994 was legislated by the Parliament in terms of Article 248 of the Constitution of India read with Entry 97 List 1 which reads as under: "97. Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists." It is also pertinent to mention that Entry 92-C of List I which deals with taxes on services was inserted by the Constitution (Eighty-eighth Amendment) Act, 2003, but was not notified and was omitted by the Constitution (One Hundred and First Amendment) Act, 2016 with effect from 16.09.2016. In the circumstances, we observe that the Finance Act, 1994 is relatable to Entry 97 of List I of the Seventh Schedule of the Constitution. Subsequently, vide the same Constitution (One Hundred and First Amendment) Act, 2016, Article 246A was inserted as special provision with respect to goods and services tax. 6.4 For the sake of completion, it would also be relevant to refer to Entries 33 and 34 List II. Entry 62 List II (State List) as it stood then, deals with taxes on luxuries including taxes on entertainment, amusement, betting and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quot; has the meaning assigned to it in clause (7) of section 2 of the Sale of Goods Act, 1930 (3 of 1930) xxx Section 66. Charge of service tax - There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent of the value of taxable services referred to in sub-clauses (a), (d), (e), (f), (g,) (h), (i), (j), (k), (l), (m), (n), (o), (p), (q), (r), (s), (t), (u), (v), (w), (x), (y), (z), (za), (zb), (zc), (zh), (zi), (zj), (zk),(zl), (zm), (zn), (zo), (zq), (zr), (zs), (zt), (zu), (zv), (zw), (zx), (zy), (zz), (zza), (zzb), (zzc), (zzd), (zze), (zzf), (zzg), (zzh), (zzi), (zzk), (zzl), (zzm), (zzn), (zzo), (zzp), (zzq), (zzr), (zzs), (zzt), (zzu), (zzv), (zzw), (zzx), (zzy), (zzz), (zzza), (zzzb), (zzzc), (zzzd), (zzze), (zzzf), (zzzg,) (zzzh), (zzzi), (zzzj), (zzzk), (zzzl), (zzzm), (zzzn), (zzzo), (zzzp), (zzzq), (zzzr), (zzzs), (zzzt), (zzzu), (zzzv), (zzzw), (zzzx), (zzzy), (zzzz), (zzzza), (zzzzb), (zzzzc), (zzzzd), (zzzze), (zzzzf), (zzzzg), (zzzzh), (zzzzi), (zzzzj), (zzzzk), (zzzzl), (zzzzm), (zzzzn), (zzzzo), (zzzzp),(zzzzq), (zzzzr), (zzzzs), (zzzzt), (zzzzu), (zzzzv) and (zzzzw)] of clause (105) of section 65 and collected in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that a lottery ticket is a slip of paper or memoranda evidencing the transfer of certain rights. We agree. 42. Webster's Words and Phrases, Permanent Edn., Vol. 25-A Supplement defines a "ticket" as "a printed card or a piece of paper that gives a person a specific right, as to attend a theatre, ride on a train, claim or purchase, etc." The Madras High Court in Sesha Ayyar v. Krishna Ayyar [AIR 1936 Mad 225 : ILR 59 Mad 562 (FB)] also held: (AIR p. 227) "Tickets of course are only the tokens of the chance purchased, and it is the purchase of this chance which is the essence of a lottery." 43. The sale of a ticket does not necessarily involve the sale of goods. For example, the purchase of a railway ticket gives the right to a person to travel by railway. It is nothing other than a contract of carriage. The actual ticket is merely evidence of the right to travel. A contract is not property, but only a promise supported by consideration, upon breach of which either a claim for specific performance or damages would lie (Said v. Butt [(1920) 3 KB 497 : 1920 All ER Rep 232] ). Like railway tickets, a ticket to see a cinema or a pawnbroker's ticket are memoranda or c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. 6.9 The definition of goods has also been noted in clause (50) of Section 65 of the Finance Act, 1994 which refers to clause (7) of Section 2 of the Sale of Goods Act, 1930. The expression "goods" under the Sale of Goods Act expressly excludes actionable claims as well as money. This Court in Sunrise Associates has held that lottery tickets are actionable claims. Therefore, as lottery tickets would not come within the meaning of the expression goods under clause (7) of Section 2 of the Sale of Goods Act, 1930, they would also not come within the scope and ambit of clause (50) of Section 65 of the Finance Act, 1994. If that is so, they would also not come within the scope and ambit of clause (19)(i) of Section 65 of the Finance Act, 1994. Lottery tickets being actionable claims and not being goods within the meaning of sub-clause (i) of clause (19) of Section 65 of the Finance Act, 1994, would expressly get excluded from the scope of the said provision. In the circumstances, service tax on the promotion or marketing or sale of lottery tickets which are actionable claims could not have been levied under the said sub-clause. 6.10 In order to remove the doubt whether service tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... virtue of the definition of goods under the very same Act read with Section 2(7) of the Sale of Goods Act, 1930. The mere insertion of an explanation cannot make an activity a taxable service when it is not covered under the main provision (which has to be read into the said subclause by virtue of the legislative device of express incorporation). This is because sale of lottery tickets is not a service in relation to promotion or marketing of service provided by a client, i.e., the State in the instant case. Conducting a lottery which is a game of chance is ex facie a privilege and an activity conducted by the State and not a service being rendered by the State. The said activity would have a profit motive and is for the purpose of earning additional revenue to the State exchequer. The activity is carried out by sale of lottery tickets to persons, such as the assessees herein, on an outright basis and once the lottery tickets are sold and the amount collected, there is no further relationship between the assessees herein and the State in respect of the lottery tickets sold. The burden is on the assessees herein to further sell the lottery tickets to the divisional / regional stocki ..... X X X X Extracts X X X X X X X X Extracts X X X X
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