Transactions in Lottery Tickets are Not Liable to Service Tax

The Hon’ble High Court of Sikkim in case of M/s Future Gam­ing Solu­tion of India Pri­vate Lim­it­ed v Union of India 2013 TIOL 904 HC SIKKIM ST has held where trans­ac­tion between assessee-dis­trib­u­tor and State Gov­ern­ment involved only sale and pur­chase includ­ing ‘on sale or return’ of lot­tery tick­ets, which are action­able claims, in that case assessee was not act­ing as agent of Gov­ern­ment, there was no ser­vice involved in trans­ac­tion and no ser­vice tax could there­fore be levied.

In the present case the peti­tion­er com­pa­ny is reg­is­tered under the Com­pa­nies Act, 1956 and is engaged in the busi­ness of sale of lot­tery tick­ets orga­nized by the Gov­ern­ment of Sikkim. The peti­tion­er com­pa­ny pro­cures the lot­tery tick­ets in bulk from the Gov­ern­ment of Sikkim and resells those to the pub­lic through var­i­ous agents, stock­ists, resellers etc.

The depart­ment has sought levy of ser­vice tax there­on argu­ing that said activ­i­ty amount­ed to pro­vi­sion of ser­vices by way of pro­mot­ing, mar­ket­ing, etc. and was liable to ser­vice tax as per rule 6(7C) of Ser­vice Tax Rules, 1994.

After detailed dis­cus­sion on var­i­ous issues and ref­er­ence to decid­ed cas­es, the High Court concluded,

1. 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’;

1. 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’;

1. The activ­i­ty of the Peti­tion­er com­pris­ing of pro­mo­tions, orga­niz­ing, 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.

1. 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.

In the light of the afore­said, the High court was of the view that trans­ac­tions in lot­tery tick­ets are not liable to Ser­vice tax under the pro­vi­sions of Finance Act, 1994 as amend­ed by the Finance Act, 2012