Full Judgment Text
2024 INSC 630
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS.2842-2848 OF 2012
K. ARUMUGAM Appellant(s)
VERSUS
UNION OF INDIA & OTHERS ETC. Respondent(s)
WITH
CIVIL APPEAL NO.2781/2012,
CIVIL APPEAL NO.2782/2012,
CIVIL APPEAL NO.2783/2012,
CIVIL APPEAL NO.2841/2012,
CIVIL APPEAL NO.2829-2840/2012,
AND
CIVIL APPEAL NO. OF 2024
(Arising out of SLP (C) No.21584 of 2012)
J U D G M E N T
NAGARATHNA, J.
Leave granted in SLP (Civil) No.21584 of 2012.
2. These appeals are filed by the assessees against the
Signature Not Verified
Digitally signed by
Nisha Khulbey
Date: 2024.09.03
17:18:37 IST
Reason:
judgments of the High Courts of Sikkim and Kerala dated
Page 1 of 25
03.07.2010 and 19.08.2011 respectively.
3. In K. Arumugam vs. Union of India , C.A. No. 2842-2848 of
2012 , the facts are that the appellant is registered with the
Directorate of State Lotteries in Thiruvananthapuram and has
purchased Kerala State Lotteries from the District Lottery
Offices and other States' lotteries in bulk from registered
promoters at a discounted rate. The appellant contends that
this purchase was made on an outright sale basis, meaning,
they bought all tickets in bulk with no return policy ("all sold
basis") and subsequently sold them to retailers, also on an
outright sale basis. A profit was made from the difference
between the amount received from retailers and the amount
paid to the State Government or registered promoters. The sale
of lotteries in Kerala was regulated by the Kerala State Lotteries
and Online Lotteries (Regulation) Rules, 2003 framed under
Section 12(3) of the Lotteries Regulation Act, 1998 and the
Kerala Tax on Paper Lotteries Act, 2005.
3.1 Appellant was directed by the Superintendent of Central
Excise, Service Tax Range, Palakkad Division, Mettuppalayam
Street, Palakkad-1, Kerala, to obtain registration and pay
Page 2 of 25
service tax under the heading ' business auxiliary service ' in
terms of the provisions of the Finance Act, 1994.
Subsequently, the appellants were served notices by the
Assistant Commissioner of Central Excise demanding details
of their lottery purchase since the year 2003. In some
instances, searches were conducted and items, including hard
discs, were seized.
3.2 As a result, the appellant approached the Kerala High
Court challenging the constitutionality of the Explanation
added to Section 65 (19) (ii) of the Finance Act, 1994 and all
consequential steps taken in pursuance thereto. The appellant
argued that the profit made from the difference between the
purchase price and the face value of the tickets did not
constitute a ‘ taxable service ’ under the relevant provision. It
was argued that the activities did not constitute a ‘taxable
service’. It was also conjunctively argued that the Explanation
inserted in the year 2008 introduced a new concept
inconsistent with the main provision and that no service tax
could be imposed based on this Court's ruling in Sunrise
Associates vs. Govt. of NCT of Delhi, (2006) 5 SCC 603
Page 3 of 25
(“Sunrise Associates”) wherein it was held that lottery tickets
are not goods but actionable claims. However, the High Court
of Kerala dismissed the petitions 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
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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 Excise,
Gangtok Range, Gangtok, Government of India requesting the
appellant to submit an application Form ST-1 seeking service
tax registration under the category " business auxiliary service "
as the service rendered by the appellant came within the ambit
of "business auxiliary service" in terms of the Explanation to
Section 65(19)(ii) of the Finance Act, 2008 and therefore, the
appellant was liable to pay service tax.
Aggrieved by the aforesaid communication dated
07.07.2009, a writ petition, being W.P.(C) No.21 of 2009 was
filed by the petitioner before the High Court of Sikkim at
Gangtok, challenging the constitutionality of the letter dated
07.07.2009 as well as the Explanation to Section 65(19)(ii)
inserted by the Finance Act, 2008. Vide impugned judgment
dated 03.07.2010, the High Court of Sikkim dismissed the writ
petition filed by the appellant herein.
3.5 The appellant maintained that the sale of lottery tickets
is, in fact, an outright purchase and does not involve any
Page 5 of 25
service to the State in terms of promotion or marketing under
the Explanation to Section 65(19)(ii) of the Finance Act, 1994
as amended by the Finance Act, 2008. The tickets sold were
mainly for lotteries organized by the States of Kerala and
Sikkim as well as the Government of Bhutan.
3.6 The Union of India, on the other hand, argued that the
appellants, in addition to selling the tickets, provided a service
to the State by marketing and promoting lotteries, as evidenced
by the Agreement, including modifications and additions
thereto, between the appellant and the State of Sikkim dated
24.08.2001, 09.12.2003, and 18.11.2005. It was contended
that the appellant was not merely engaged in outright sale of
lottery tickets simpliciter but rendered expansive services. The
Union sought to explain that the appellant herein issued
advertisements, had a right to be consulted in respect of design
of a lottery ticket, had a say in the matter of arranging and
organizing the lottery, had been authorized to promote and
market the online lottery and paid minimum assured revenue
of rupees Ten crores per annum to the State of Sikkim.
Page 6 of 25
3.7 It would be relevant to observe that these appellants
were/are all carrying on the business of buying and selling of
lottery tickets. They purchased the lottery tickets from the
State Governments which organized the lotteries and sold the
same in 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
Page 7 of 25
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 ambit of Section 65(19)(ii)
read with Section 65(105)(zzb) of the
Finance Act, 1994? If not, what relief(s)
the appellants are entitled to?
2. What Order?
6. In order to better understand the controversy in these
cases, it would be relevant to advert to the provisions of the
Constitution as well as the provisions of the Finance Act, 1994
(which imposes service tax, pertinently on business auxiliary
service).
6.1 Article 246 of the Constitution pertains to the division of
subjects between the Central (Parliament) and State
Legislatures in the form of three lists in the Seventh Schedule
Page 8 of 25
of the Constitution, namely List 1 – Union List, List 2 – State
List and List 3 – Concurrent List. It would be useful to extract
Article 246 of the Constitution as under:
“246. Subject-matter of laws made by Parliament and
by the Legislatures of States.
(1) Notwithstanding anything in clauses (2)
and (3), Parliament has exclusive power to
make laws with respect to any of the
matters enumerated in List I in the
Seventh Schedule (in this Constitution
referred to as the “Union List”).
(2) Notwithstanding anything in clause (3),
Parliament, and, subject to clause (1), the
Legislature of any State also, have power to
make laws with respect to any of the
matters enumerated in List III in the
Seventh Schedule (in this Constitution
referred to as the “Concurrent List”).
(3) Subject to clauses (1) and (2), the
Legislature of any State has exclusive
power to make laws for such State or any
part thereof with respect to any of the
matters enumerated in List II in the
Seventh Schedule (in this Constitution
referred to as the “State List”).
(4) Parliament has power to make laws with
respect to any matter for any part of the
territory of India not included in a State
notwithstanding that such matter is a
matter enumerated in the State List.”
Page 9 of 25
6.2 Article 248 deals with Residuary power of Legislatures
and the same reads as under:
“248. Residuary powers of legislation.
(1) Subject to Article 246A, Parliament has
exclusive power to make any law with
respect to any matter not enumerated in
the Concurrent List or State List.
(2) Such power shall include the power of
making any law imposing a tax not
mentioned in either of those Lists.”
At this stage itself, it may be mentioned that the residuary
power is reserved to the Parliament to legislate on any subject
provided 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
Page 10 of 25
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 gambling, etc. The
said Entry has subsequently been amended with effect from
16.09.2016. However, it is not necessary to extract the
amended Entry as these appeals pertain to the period prior to
01.07.2010. Entries 33 and 34 of List II are the regulatory
Entries, which read as under:
“33. Theaters and dramatic performances; cinemas
subject to the provisions of entry 60 of List I;
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sports, entertainments and amusements.
34. Betting and gambling.”
6.5 Reverting to the Finance Act, 1994 and particularly
Chapter V which deals with Service Tax, the following
provisions, which are relevant for the purpose of this
controversy, could be extracted as under:
“65. Definitions.— In this Chapter, unless the context
otherwise requires.—
xxx
65(19) “ business auxiliary service ” means any
service in relation to,—
(i) promotion or marketing or sale of goods produced
or provided by or belonging to the client; or
(ii) promotion or marketing of service provided by the
client; or
Explanation .- For the removal of doubts, it is
hereby declared that for the purpose of this sub-
clause, “service in relation to promotion or
marketing of service provided by the client”
includes any service provided in relation to
promotion or marketing of games of chance,
organized, conducted or promoted by the client,
in whatever form or by whatever name called,
whether or not conducted online, including
lottery, lotto, bingo;
(iii) any customer care service provided on behalf of
the client; or
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(iv) procurement of goods or services, which are
inputs for the client; or
Explanation .- For the removal of doubts, it is
hereby declared that for the purposes of this
sub-clause, “inputs” means all goods or services
intended for use by the client;
(v) production or processing of goods for, or on behalf
of the client; or
(vi) provision of service on behalf of the client; or
(vii) a service incidental or auxiliary to any activity
specified in sub-clauses (i) to (vi), such as billing
issue or collection or recovery of cheques, payments,
maintenance of accounts and remittance, inventory
management, evaluation or development of
prospective customer or vendor, public relation
services, management or supervision,
and includes services as a commission agent, but
does not include any activity that amounts to
“manufacture” of excisable goods.
xxx
Section 65(50) " goods " 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),
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(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 such manner as may be
prescribed.
xxx
Section 65(105) " taxable service " means any service
provided or to be provided,-
(a) xxx
(zzb) to a client, by any person in relation to
business auxiliary service;”
6.6 It is relevant to note that Section 65(50) of the Finance
Act, 1994 defines goods to have the same meaning assigned to
it under Clause (7) of Section 2 of the Sale of Goods Act, 1930.
Clause (7) of Section 2 of the Sales of Goods Act, 1930, reads
as under:
“ 2. Definitions.— In this Act, unless there is anything
repugnant in the subject or context,—
xxx
(7) “ goods ” means every kind of moveable property
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other than actionable claims and money; and includes
stock and shares, growing crops, grass, and things
attached to or forming part of the land which are
agreed to be severed before sale or under the contract
of sale;”
(underlining by us)
6.7 In the case of Sunrise Associates , the Constitution
Bench of this Court speaking through Ruma Pal, J., opined
that lottery tickets can be categorized as actionable claims. The
relevant paragraphs of the said judgment read as under:
“40. An actionable claim would include a right to
recover insurance money or a partner's right to sue for
an account of a dissolved partnership or the right to
claim the benefit of a contract not coupled with any
liability (see Union of India v. Sri Sarada Mills
Ltd. [(1972) 2 SCC 877] , SCC at p. 880). A claim for
arrears of rent has also been held to be an actionable
claim ( State of Bihar v. Maharajadhiraja Sir
Kameshwar Singh [(1952) 1 SCC 528 : 1952 SCR 889 :
AIR 1952 SC 252] , SCR at p. 910). A right to the credit
in a provident fund account has also been held to be
an actionable claim ( Official Trustee v. L.
Chippendale [AIR 1944 Cal 335 : ILR (1943) 2 Cal
325] ; Bhupati Mohan Das v. Phanindra Chandra
Chakravarty [AIR 1935 Cal 756 : 40 CWN 102] ). In
our opinion a sale of a lottery ticket also amounts to
the transfer of an actionable claim.
41. A lottery ticket has no value in itself. It is a mere
piece of paper. Its value lies in the fact that it
represents a chance or a right to a conditional benefit
of winning a prize of a greater value than the
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consideration paid for the transfer of that chance. It is
nothing more than a token or evidence of this right.
The Court in H. Anraj [(1986) 1 SCC 414 : 1986 SCC
(Tax) 190] , as we have seen, held 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 contracts
between the vendors of the ticket and the purchasers.
Cases on whether the terms specified on such tickets
bind the purchaser are legion. It is sufficient for our
purpose to note that tickets are themselves, normally
evidence of and in some cases the contract between
the buyer of the ticket and its seller. Therefore a lottery
ticket can be held to be goods if at all only because it
evidences the transfer of a right.
Page 16 of 25
44. The question is, what is this right which the ticket
represents? There can be no doubt that on purchasing
a lottery ticket, the purchaser would have a claim to a
conditional interest in the prize money which is not in
the purchaser's possession. The right would fall
squarely within the definition of an actionable claim
and would therefore be excluded from the definition of
“goods” under the Sale of Goods Act and the sales tax
statutes. This was also accepted in H. Anraj [(1986) 1
SCC 414 : 1986 SCC (Tax) 190] when the Court said
that to the extent that the sale of a lottery ticket
involved a transfer of the right to claim a prize
depending on chance, it was an assignment of an
actionable claim. Significantly in B.R.
Enterprises v. State of U.P. [(1999) 9 SCC 700]
construing H. Anraj [(1986) 1 SCC 414 : 1986 SCC
(Tax) 190] the Court said: (SCC p. 746, para 52)
“ 52 . So, we find three ingredients in the sale
of lottery tickets, namely, ( i ) prize, ( ii ) chance,
and ( iii ) consideration. So, when one
purchases a lottery ticket, he purchases for a
prize, which is by chance and the
consideration is the price of the ticket.”
xxx
51. We are therefore of the view that the decision in H.
Anraj [(1986) 1 SCC 414 : 1986 SCC (Tax) 190]
incorrectly held that a sale of a lottery ticket involved
a sale of goods. There was no sale of goods within the
meaning of Sales Tax Acts of the different States but
at the highest a transfer of an actionable claim. The
decision to the extent that it held otherwise is
accordingly overruled though prospectively with effect
from the date of this judgment.”
6.8 On a reading of clause (19) of Section 65 of the Finance
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Act, 1994 and on analyzing the same, it is evident that tax on
a business auxiliary service is relatable to (i) any service
concerning promotion or marketing or sale of goods, produced
or provided by, or belonging to the client and (ii) promotion or
marketing of service provided by the client.
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
Page 18 of 25
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 could be
levied on promotion or marketing or sale of lottery tickets
under Clause 19(ii) of Section 65 of the Finance Act, 1994, an
Explanation was added with effect from 16.05.2008. The
Explanation has also been extracted above. Although the
Explanation is for the purpose of removal of doubts, it is
relevant to note that what is excluded in sub-clause (i) of
clause (19) of Section 65 of the Act, namely lotteries being
actionable claim and not goods, as analysed above, is sought
to be mentioned as lottery per se in the Explanation. Thus,
when lottery ticket is an actionable claim and not “goods” and
is therefore outside the scope of sub-clause (i) of clause 19 of
Section 65 of the Finance Act, 1994, it could not have been
included as lottery per se in the Explanation to sub-clause (ii)
of Clause 19 of Section 65 of the Finance Act, 1994 as “service
in relation to promotion or marketing of service provided by the
Page 19 of 25
client” including any service provided in relation to promotion
or marketing of games of chance, organized, conducted or
promoted by the client, in whatever form or by whatever name
called, whether or not conducted online, including lottery,
lotto, bingo.
The Explanation sought to bring the activity of sale of
lottery tickets within sub-clause (ii) of Clause 19 of Section 65
of the Finance Act, 1994, when it was excluded from sub-
clause (i) on account of the lottery tickets being interpreted as
actionable claims and not goods on the premise that it was a
service within the meaning of said sub-clause. On a plain
reading of the Explanation in light of the activity actually
carried on by the appellant(s)-assessee(s) herein, it becomes
clear that the outright purchase of lottery tickets from the
promoters of the State or Directorate of Lotteries, as the case
may be, is not a service in relation to promotion or marketing
of service provided by the client, i.e., the State conducting the
lottery. 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
Page 20 of 25
while dealing with the business of lottery. Explanation to sub-
clause (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 sub-
clause 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
Page 21 of 25
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 stockists for
a profit as their business activity. This activity is not a
promotion or a marketing service rendered by the assessees
herein to the State within the meaning of sub-clause (ii) of
Clause 19 of Section 65 of the Finance Act, 1994. This is
because, to reiterate, the States are not rendering a service but
engaged in the activity of conducting lottery to earn additional
revenue. Moreover, once the lottery tickets are sold by the
Directorate of Lotteries—a Department of the State, there is
transfer of the title of the lottery tickets to the appellants, who,
as owners of the said lottery tickets, in turn sell them to
stockists and others. Thus, there is no promotion of the
business of the State as its agent. Thus, there is no
‘principal—agent’ relationship which would normally be the
case in a relationship where a business auxiliary service is
rendered. The relationship between the State and the
appellants is on a principal to principal basis. Thus, there is
Page 22 of 25
no activity of promotion or marketing of a service on behalf of
the State. Neither is the State, which conducts the lottery,
rendering a service within the meaning of the Finance Act,
1994.
The Explanation, therefore, cannot over-ride the main
text of the provision as the Explanation which was sought to
remove doubts is in fact contrary to the main provision which
defines business auxiliary service and also contrary to the
judgment of this Court in Sunrise Associates and having
regard to clause (50) of Section 65 of the Finance Act, 1994.
No doubt the Explanation was omitted with effect from
01.07.2010. However, these cases pertain to the period prior
to 01.07.2010. Therefore, either under sub-clause (i) of clause
(19) of Section 65 or under the Explanation to sub-clause (ii)
of Clause 19 of Section 65 of the Finance Act, 1994, after it
was introduced with effect from 16.05.2008 and until it was
omitted, service tax could not have been levied on the
promotion or marketing of sale of goods or service provided by
the client, on the premise that it was a ‘business auxiliary
service’.
Page 23 of 25
7. The High Courts have lost sight of the definition of ‘goods’
in clause (50) of Section 65 of the Act while interpreting the
expression “lottery”. As already noted, the definition of ‘goods’
in clause (7) of Section 2 of Sale of Goods Act, 1930, that is
expressly incorporated in clause (50) of Section 65 of the Act,
which expressly excludes actionable claims. This Court has by
the Constitution Bench in Sunrise Associates opined that
lottery tickets are actionable claims. The High Courts have also
lost sight of the fact that the sale of lottery tickets by the State
is a privileged activity by itself and not rendering of a service
for which the assessees are rendering promotion or marketing
service.
8. In view of the above discussion, the appeals filed by the
appellants-assessees are liable to be allowed and are allowed
by setting aside the impugned judgments of the High Courts of
Sikkim and Kerala.
9. Having regard to the mandate of Article 265 of the
Constitution of India, the appeals are allowed with all
consequential reliefs to the appellants.
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10. It is needless to observe that if any representations are
made seeking refund of the amounts paid, the same shall be
considered expeditiously by the concerned departments of the
respondents.
In the facts and circumstances of these matters, there will
be no order as to costs.
..…………………………………..……………J.
[B.V. NAGARATHNA]
….………………………………………………J.
[NONGMEIKAPAM KOTISWAR SINGH]
New Delhi;
August 08, 2024
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