Lottery Commission and GST: The Silent Fault Line in Kerala’s Revenue Administration By G. Jayaprakash, Advocate and Former Central Excise Officer

The concept of agency under the Indian Contract Act, 1872 rests on authority, consent, and representation. An agent acts for and on behalf of a principal and has power to bind that principal in dealings with third parties. A lottery ticket seller, however, performs none of these functions. He merely sells tickets printed, owned, and priced by the State Government or its authorised distributor. Once a buyer purchases a ticket, the seller’s duty ends; he has no continuing authority to act for the buyer or to represent him thereafter. The buyer’s rights flow not from any contractual agency but from the statutory rules governing the draw. To call a ticket seller an agent of the buyer is therefore a legal fiction, convenient for administrative control but without basis in the law of agency.

This fiction has long been used to justify paying “commission” to sellers, as if they were agents acting for someone else. In truth, this commission is simply a trade margin or incentive for distribution. It is not a fiduciary reward nor a payment for representing another person. The seller acts in his own right and for his own profit under fixed margins and rules. The State remains the organiser; the ticket remains State property until sale. What the seller earns is consideration for promoting sales — a commercial activity, not an act of representation.

When the Goods and Services Tax (GST) regime arrived, this convenient illusion became legally complicated. Lottery tickets, once treated as actionable claims outside the tax net, were brought squarely under GST as “goods.” Tax is levied at 12 per cent for State-run lotteries and 28 per cent for authorised lotteries, and a 40 per cent rate is under consideration. This tax applies to the supply of tickets, not to the prize or winnings. The prize payout is a statutory obligation, not a taxable supply. But when a portion of the prize amount is diverted as “agent’s commission on prize”, the question arises: is that commission itself a taxable supply of service under GST?

In Kerala, every official lottery scheme — Akshaya, Nirmal, Bhagyamithra, Fifty-Fifty, and others — specifies a fixed percentage, usually 10 to 12 per cent, as agents’ commission on prize. This is deducted from the prize fund and paid to the selling agent whose ticket won. The scheme documents show this clearly in the prize structure, listing total prize liability, agents’ commission, and unclaimed prize pool. Yet neither the Kerala GST Department nor the Directorate of State Lotteries has issued a single circular, clarification, or audit note explaining whether this commission attracts GST. The Kerala State Lotteries Rules merely authorise the Director to fix the commission rate; they are silent on taxation.

If the commission is viewed as a service rendered by the agent to the organiser, it squarely falls within “supply” as defined in Section 7 of the CGST/SGST Acts and should attract GST, subject to registration and invoicing. Conversely, if it is considered merely a part of the prize distribution mechanism — a deduction from the prize fund rather than consideration for a service — it might be outside the tax net. The department’s silence leaves both interpretations open, creating uncertainty for agents and the administration alike.

One may argue that since GST is already levied on the ticket’s face value, taxing the prize commission would amount to double taxation. But that is not entirely correct. The commission on prize is not part of the ticket price; it is a separate entitlement arising after the draw, independent of ticket supply. The taxable event for GST is the supply of goods or services, not the outcome of a game. Hence, if the agent receives commission as consideration for promoting sales or performing post-sale services, that payment arguably constitutes a separate supply liable to GST.

Why then is the administration silent? Several explanations are possible.

First, there is interpretational uncertainty — neither the Centre nor the State has clarified how such hybrid payments should be treated.

Second, the commission amounts are fragmented across thousands of agents, making audit enforcement cumbersome.

Third, the political sensitivity of Kerala’s lottery sector — a huge revenue source tied to welfare schemes — discourages departmental zeal that could disrupt the network.

Finally, the Special Commissioner (GST), who simultaneously holds additional charge as Director of Lotteries, sits at the very intersection of tax and regulation. His dual role makes silence a convenient equilibrium: it avoids confrontation between revenue law and administrative reality.

The result is a policy vacuum. GST was meant to bring uniformity and transparency, but in practice it tolerates convenient gaps. When the same officer supervises both GST collection and lottery administration, clarity is not just desirable — it is a duty. Ambiguity benefits no one: not the agents, not the State, and not the credibility of the tax system.

Kerala’s situation reveals a deeper fault line in fiscal governance. The law of agency denies that a ticket seller acts for the buyer; the GST law taxes real supplies, not legal fictions. Yet the term “commission” continues without clarification, blending agency and commerce in one breath. If GST aims to rationalise taxation, its scope must rest on principle, not on silence. The inaction of the Special Commissioner is therefore not a mere omission — it is an acknowledgment that law and practice are drifting apart. That is the true fault line in Kerala’s revenue administration.

References

1. Indian Contract Act, 1872 — Sections 182–189 (Agency).
2. Central Goods and Services Tax Act, 2017 — Section 7 (Scope of Supply).
3. Notification No. 1/2017-Central Tax (Rate) and subsequent amendments — GST rates on lotteries.
4. Skill Lotto Solutions Pvt. Ltd. v. Union of India (2020) 12 SCC 401 — Supreme Court upholding GST on lotteries.
5. Kerala State Lotteries Rules, as amended up to 2024.
6. Kerala State Lotteries prize structures (Akshaya, Nirmal, Bhagyamithra) available at statelottery.kerala.gov.in.
7. CBIC FAQs on GST on Actionable Claims (2021).
8. ICSI Paper on “GST on Lotteries in India – An Overview” (2023).
9. PwC India News Alert, 16 December 2020 – “Supreme Court upholds GST on lottery as actionable claim.”
10. Clear tax Analysis – GST Impact on Lottery Tickets (2023).