2018 (11) TMI 886 - AAR - GST

Lottery distributor liable for IGST under reverse charge on interstate lottery tickets from state government

In Re: ECOOL Gaming Solutions Private Limited

AAR Maharashtra ruled that the applicant lottery distributor in Maharashtra is liable to pay IGST under reverse charge mechanism on lottery tickets ... Levy of IGST u/s 5(3) of IGST act, 2017 - supply of lottery tickets by the organising state - applicability of Serial No.5 of N/N. 4/2017 - Integrated Tax (Rate) - Reverse charge mechanism - Held that:- Applicant is recipient of supply in the form of lottery and is located in Maharashtra. The supplier of lottery is the State Government of Mizoram which is located outside State. Therefore as per the provisions of Section 7(1) of the IGST Act, the transaction shall be treated as a supply of goods in the course of “interstate” trade or commerce - In view of Section 5(3) of the IGST Act, N/N. 4/20171ntegrated Tax (Rate) dated 28.06.2017 has been issued which provides the description of goods in respect of which Integrated Tax shall be paid on Reverse Charge basis by the recipient of the Inter-State supply of such goods. The supplier of Lottery in the present case is the State Government of Mizoram and the recipient of supply i.e. Lottery distributor or Agent, is the applicant in the present case who is located in Maharashtra and therefore the applicant is liable to payment of IGST under Reverse Charge mechanism as per the provisions and Notification referred. Ruling:- Applicant is liable to pay IGST under section 5 (3) of IGST Act, 2017. Serial No.5 of Notification No. 4/2017 - Integrated Tax (Rate) is applicable on supply received by the applicant. ISSUES PRESENTED AND CONSIDERED 1. Whether the recipient of notified supply of lottery tickets is liable to pay Integrated Goods and Services Tax (IGST) under the reverse charge mechanism as provided in section 5(3) of the IGST Act. 2. Whether the entry for 'Supply of lottery' contained in Serial No. 5 of Notification No. 4/2017 - Integrated Tax (Rate) (the Notification) applies to the supply received by the applicant (i.e., whether that notification makes the recipient liable to pay IGST on inter-state supplies of lottery tickets made by a State Government outside the recipient's State). ISSUE-WISE DETAILED ANALYSIS - ISSUE 1: Liability to pay IGST under section 5(3) of the IGST Act Legal framework: Section 5(3) of the IGST Act empowers the Government, by notification, to specify categories of supply the tax on which shall be paid on reverse charge basis by the recipient; where so notified, all provisions of the Act apply to the recipient as if he is the person liable for paying the tax. Section 7(1) treats supplies where supplier and place of supply are in different States as inter-state supplies. Place of supply rules (section 10(1)(c)) provide that where supply does not involve movement of goods, the place of supply is the location of the goods at the time of delivery to the recipient. Precedent treatment: No judicial precedents were cited or relied upon in the decision; the Authority proceeded on the statutory text and the Notification. Interpretation and reasoning: The Authority accepted the factual findings that (a) the supplier is a State Government located outside the recipient's State, (b) the applicant (recipient) is located within the State of Maharashtra, and (c) the lottery tickets in question are online tickets where no physical movement by the supplier or recipient is involved. Applying section 10(1)(c), the place of supply is the location where tickets are made available to the recipient (Maharashtra), and section 7(1) therefore classifies the transaction as an inter-state supply. Given that the Government has notified certain supplies to be taxed under reverse charge (section 5(3)), the Authority held that the recipient (distributor/agent) is liable to pay IGST on such inter-state supply where notified. Ratio vs. Obiter: Ratio - The interpretation that where a State Government supplies lottery tickets to a distributor located in another State (and the place of supply is the recipient State under section 10(1)(c)), that transaction is an inter-state supply under section 7(1) and, when covered by a notification under section 5(3), the recipient is liable to pay IGST under reverse charge. No obiter dicta of significance recorded. Conclusion: The Authority answered this issue in the affirmative - the recipient is liable to pay IGST under section 5(3) of the IGST Act on the notified supply of lottery tickets received from a State Government located outside the recipient's State. ISSUE-WISE DETAILED ANALYSIS - ISSUE 2: Applicability of Serial No.5 of Notification No.4/2017 (Supply of lottery) Legal framework: Notification No. 4/2017 - Integrated Tax (Rate) prescribes certain goods for which Integrated Tax shall be paid on reverse charge basis by the recipient when the supplier is specified (e.g., State Government) and the recipient is within another State; the Notification includes an entry for 'Supply of lottery' with supplier identified as State Government/Union Territory/local authority and recipient identified as lottery distributor or selling agent (with reference to the Lotteries (Regulation) Rules definition). Precedent treatment: No prior authority or conflicting administrative view was followed or distinguished; the Authority relied on the Notification's terms and statutory provisions. Interpretation and reasoning: The Authority examined the factual matrix and the Notification entry. It found that the Notification explicitly covers 'Supply of lottery' where the supplier is a State Government and the recipient is a lottery distributor or selling agent. Given the applicant's role as distributor/marketing agent under the agreement and the supplier being the State Government of Mizoram, the Notification was directly applicable. The Authority also reasoned that, since the place of supply is determined to be in Maharashtra (per section 10(1)(c)) and the supplier is located outside Maharashtra, the supply is inter-state; the Notification thus correctly prescribes IGST to be paid by the recipient under reverse charge at the notified rate (28% in the case of state-authorized lotteries). Ratio vs. Obiter: Ratio - The Notification's Serial No.5 applies to an inter-state supply of lottery by a State Government to a distributor/selling agent located in another State, thereby rendering the recipient liable to pay IGST under reverse charge. Observations that alternative interpretations would render the Notification 'obsolete' were noted as the applicant's contention but rejected as illogical by the Authority (these observations are explanatory and not required for the core holding). Conclusion: The Authority answered this issue in the affirmative - Serial No.5 of Notification No.4/2017 is applicable to the supplies received by the applicant, requiring the recipient to pay IGST under reverse charge on such inter-state supplies of lottery. CROSS-REFERENCES AND INTERPLAY BETWEEN ISSUES The two issues are interdependent: the statutory reverse charge power in section 5(3) is activated by the Notification (Serial No.5), and the classification as inter-state supply (section 7(1)) and place of supply rule (section 10(1)(c)) determine that IGST (not CGST/SGST) is the applicable tax. The Authority's reasoning proceeds from factual location of supplier and recipient ? place of supply under section 10(1)(c) ? inter-state character under section 7(1) ? applicability of Notification under section 5(3) ? recipient's liability to pay IGST under reverse charge. DISPOSITION Both questions framed by the applicant were answered affirmatively: (1) the applicant (recipient/distributor) is liable to pay IGST under section 5(3) of the IGST Act on the notified supply of lottery tickets received from a State Government located outside the recipient's State; and (2) Serial No.5 of Notification No.4/2017 - Integrated Tax (Rate) applies to the supply received by the applicant, attracting IGST under reverse charge at the notified rate.