Lottery ticket resale was not taxable as business auxiliary service because the activity was outside the charging provision

Purchasing and reselling lottery tickets on a principal-to-principal basis did not constitute a taxable business auxiliary service under the Finance Act, 1994. Lottery tickets were treated as actionable claims, not goods for the relevant charging provision, and the State conducting lotteries was not being promoted or marketed by the assessees. The Explanation inserted into Section 65(19)(ii) could not expand the main charging provision to cover an activity otherwise outside the tax net. Service tax was therefore held not to apply to the resale activity.

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Issues: Whether the activity of purchasing and reselling lottery tickets constituted a taxable service within Section 65(19)(ii) read with Section 65(105)(zzb) of the Finance Act, 1994.

Analysis: Service tax under business auxiliary service applies to promotion or marketing of goods or services of a client. Lottery tickets were held to be actionable claims and, therefore, excluded from the definition of goods incorporated into the Finance Act through the Sale of Goods Act. The activity carried on by the assessees was an outright purchase and resale of lottery tickets on a principal-to-principal basis. The State, while conducting lotteries, was not rendering a service to be promoted or marketed by the assessees. The Explanation inserted to Section 65(19)(ii) could not enlarge the main provision so as to tax an activity that remained outside the charging provision.

Conclusion: The activity did not attract service tax under business auxiliary service and the issue is answered in favour of the assessees.

Ratio Decidendi: An Explanation cannot be used to create a taxable service where the main charging provision does not cover the underlying activity, and sale of lottery tickets as actionable claims does not amount to promotion or marketing of goods or services for service tax purposes.

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