2026 (2) TMI 529 - AT - Service Tax

Sale and distribution of lottery tickets: service tax not leviable as distributor relationship is principal to principal, appeals allowed

Sale, marketing and distribution of lottery tickets do not attract service tax where the distributor's relationship with the State is principal to ... Business Auxiliary Services - service tax leviability on sale, marketing and distribution of lottery tickets - principal principal relationship versus principal agent - Negative List exclusion for betting, gambling or lottery - transaction in money or actionable claim - treatment of lottery distributor activity - noscitur a sociis - Whether service tax is leviable on sale, marketing and distribution of lottery tickets. - HELD THAT:- We find that the issue is no longer res integra covered by the judgment of the Hon’ble Supreme Court in the case of Union of India & Others V. Future Gaming Solutions Pvt. Ltd. & Another Etc. [2025 (2) TMI 483 - SUPREME COURT], held that ' we find that at each stage, the amendments made to the Finance Act, 1994, in order to impose service tax on the sole distributor/purchaser of the lottery tickets (respondents-assessees herein) have been unsuccessful. We have reasoned that the amendment to the said definition would in no way detract from the substance of the relationship between the State Government and the sole distributor or purchaser of the lottery tickets which is one of principal to principal and not of principal-agent. There being no agency and no service rendered by the respondents-assessees herein as an agent to the Government of Sikkim, service tax is not leviable on the transactions between the purchaser of the lottery tickets (respondents-assessees herein) and the Government of Sikkim. we find no merit in the appeals filed by the Union of India and others. Hence these appeals are dismissed. The appeal filed by the assessee is disposed accordingly.” Following the aforesaid judgment, the impugned orders are set aside and appeals are allowed with consequential relief, if any, as per law. Issues: Whether service tax is leviable on sale, marketing and distribution of lottery tickets (i.e., whether activities of lottery distributors/selling agents amount to 'Business Auxiliary Service' or other taxable service under the Finance Act, 1994).Analysis: The Court examined the statutory amendments to the Finance Act, 1994 (including provisions defining taxable services and the Negative List) and the character of the relationship between the State and lottery distributors. The judgment relied on the Supreme Court decision in Union of India v. Future Gaming Solutions Pvt. Ltd., which analysed successive amendments and held that the distributor of lottery tickets acts in its own right (principal to principal) rather than as an agent of the State. The decision reasoned that inclusion of betting, gambling and lottery in the Negative List and subsequent explanatory amendments did not convert the distributor's purchase-and-resale activity into a taxable 'service' of the State; the conduct of a lottery remains within the domain of betting/gambling and taxation by the State, and the distributor's transactions are transactions in actionable claims or resale in its own capacity.Conclusion: Service tax is not leviable on the sale, marketing and distribution of lottery tickets; the impugned demands under 'Business Auxiliary Service' are set aside and the appeals are allowed in favour of the appellants.