New Delhi, Feb 11 (PTI) Lottery distributors are not liable to pay service tax to the Union government, the Supreme Court held on Tuesday while dismissing an appeal of the Centre on the issue.

A bench comprising Justices BV Nagarathna and NK Singh did not agree to the appeal of the Centre against the Sikkim High Court judgement.

“Since there is no agency in the relationship, the respondents (lottery distributors) were not liable to pay service tax. However, the respondents will continue to pay the gambling tax levied by the state under Entry 62, List II of the Constitution,” Justice Nagarathna said while pronouncing the verdict.

"Service tax is not leviable on the transactions between the purchaser of the lottery tickets and firm…In view of the aforesaid discussions, we find no merit in the appeals filed by the Union of India and others. Hence, these appeals are dismissed," the bench said.

Upholding the Sikkim High Court verdict, the top court said it is only the state government that can impose taxes on lotteries and not the Centre.

The Centre had contended that it was entitled to impose service tax.

The top court said the high court was right in holding that the lottery comes within the expression "betting and gambling" which is part of Entry 62 of the state list of the Constitution and only the state can impose the tax.

The Centre had moved the top court in 2013. The high court judgement had come on a plea filed by lottery firm Future Gaming Solutions Pvt Ltd. PTI SJK SJK DV DV

Lottery distributor liability for service tax clarified: no service tax on distributor transactions, state gambling tax remains applicable. Distributor-mediated lottery sales do not attract Union service tax because those arrangements lack an agency relationship; lotteries are governed by the state power to tax as part of the betting and gambling entry in List II, Entry 62, so states may levy gambling tax while the Centre cannot impose service tax on such transactions.