2013 (11) TMI 1006 - HC - Service Tax

Court rules lottery ticket sales not subject to service tax under Finance Act, orders refund

M/s. Summit Online Trade Solutions Private Limited and Others Versus Union of India and Others

The High Court held that the sale of lottery tickets does not constitute a service liable to service tax under the Finance Act, 1994. It determined that ... Rectification of error - levy of service tax on the activity of promotion, marketing, organizing or in any other manner assisting in organizing game of chance including lottery - [2013 (11) TMI 1002 - SIKKIM HIGH COURT] - held that:- We have no hesitation to hold that paragraph 21 of the judgment calls for a review and is accordingly reviewed as being “an error apparent on the face of the record”. Consequently, paragraph 21 of our judgment dated 29-11-2012 shall stand substituted as under:- Since the Petitioners secured registration and paid service tax under the impugned provision under protest and that this Court by its Order dated 07-06-2011 in WP(C) No.23 of 2011 had made clear “that any levy or payments made under the Legislation under challenge shall be subject to the outcome of this writ petition”, the Petitioners shall be entitled to refund of the amount of service tax paid by them under the impugned Clause with effect from 01-07-2010 as prayed for in paragraph (c) of WP(C) No.23 of 2011 and paragraph (iii) of WP(C) No.36 of 2011. Issues Involved:1. Constitutional validity of Sub-Clause (zzzzn) of Clause (105) of Section 65 of the Finance Act, 1994.2. Legislative competence of Parliament to levy service tax on the sale of lottery tickets.3. Refund of service tax collected under the impugned provision.4. Jurisdiction of the High Court to review its own judgment.5. Error apparent on the face of the record.6. Doctrine of unjust enrichment and its applicability.7. Prospective vs. retrospective operation of the judgment.Issue-wise Detailed Analysis:1. Constitutional Validity of Sub-Clause (zzzzn) of Clause (105) of Section 65 of the Finance Act, 1994:The petitioners challenged the constitutional validity of Sub-Clause (zzzzn) of Clause (105) of Section 65 of the Finance Act, 1994, arguing that the sale of lottery tickets does not constitute a service and thus should not be liable to service tax. The court, in its judgment dated 29-11-2012, held that the activities of lottery distributors do not constitute a service and are beyond the purview of 'taxable service' as defined under the impugned clause.2. Legislative Competence of Parliament to Levy Service Tax on the Sale of Lottery Tickets:The petitioners contended that Parliament lacked the legislative competence to levy tax on the sale of lotteries as a service, citing Entry 34 of List II and Entry 92C of List I of the Seventh Schedule of the Constitution of India. The court concluded that the promotion, marketing, organizing, or assisting in organizing a game of chance, including lotteries, falls under 'betting and gambling' as per Entry 34 and 62 of List II, and thus, only the State Legislature is competent to levy any tax on such activities under Entry 62.3. Refund of Service Tax Collected Under the Impugned Provision:The petitioners sought a refund of the service tax collected from them under the impugned provision. The court initially held that the judgment would be prospective in operation since the petitioners had secured registration and paid service tax under the impugned provision on their own. However, upon review, it was found that the petitioners had paid the service tax under protest, and the court ordered the refund of the amount of service tax paid by them with effect from 01-07-2010.4. Jurisdiction of the High Court to Review its Own Judgment:The court acknowledged its inherent power and duty to review its own judgment as a court of record under Article 215 of the Constitution of India. It cited the decision in M. M. Thomas vs. State of Kerala, which affirmed that the High Court has the power to correct any error apparent on the face of the record.5. Error Apparent on the Face of the Record:The court identified an error in its previous judgment, specifically in paragraph 21, where it had incorrectly stated that the petitioners had secured registration and paid service tax on their own. The review revealed that the petitioners had paid the service tax under protest, and this error was apparent on the face of the record.6. Doctrine of Unjust Enrichment and Its Applicability:The court discussed the doctrine of unjust enrichment, which states that a refund of tax should not result in unjust enrichment. It was established that the petitioners had not passed the burden of the tax to any other person, and thus, the principle of unjust enrichment was inapplicable in this case. The court cited several cases, including Mafatlal Industries Ltd. vs. Union of India, to support this conclusion.7. Prospective vs. Retrospective Operation of the Judgment:The court considered whether the judgment should operate prospectively or retrospectively. It concluded that since the impugned provision was held to be ultra vires, it was invalid from its inception, and all actions taken under it were non est and nugatory. The court rejected the argument that the judgment should only have prospective effect, citing the decision in State of H. P. vs. Nurpur Private Bus Operators' Union, which held that once a provision is declared invalid, all collections made under it stand invalidated.Conclusion:The High Court reviewed and corrected its judgment, holding that the petitioners were entitled to a refund of the service tax paid under the impugned provision with effect from 01-07-2010. The rest of the judgment remained unaltered. The review petitions were allowed, and no order as to costs was made.