TaxTMI 
TaxTMI 
2013 (11) TMI 1002
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....sting in organising game of chance, including lottery" as a new category of "taxable service". It is relevant to note the facts leading to filing of the present petitions. 2. Both the petitioners are companies incorporated as Private Limited companies under the Indian Companies Act, 1956. The petitioners are engaged in the business of sale of paper and online lottery tickets respectively organised by the Government of Sikkim. Petitioner in W.P. (C) No.36 of 2011, namely, M/s. Future Gaming Solutions Pvt. Ltd. dealing with paper lottery tickets, entered into an Agreement for the sale of lottery tickets on behalf of the State of Sikkim on 10.08.2009 (Annexure-3), whereas the petitioner in W.P. (C) No.23 of 2011, namely, Summit Online Trade Solutions Pvt. Ltd. dealing with online lottery tickets, entered into an Agreement with the State of Sikkim on 09.05.2005 (Annexure-P3 colly.) followed by a Supplementary Agreement dated 25.04.2008. Mutual terms and conditions concerning the sale and purchase of lottery tickets between the State Government and the petitioners are governed and regulated by the contractual stipulations contained in the aforesaid Agreements. The relevant conditions....
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....ector who shall immediately thereafter make arrangements to publicize the result of each draw: Provided that the sole purchaser is at liberty, on his own cost and expenses, to take up any kind of publicity of Sikkim state lotteries including telecast of result on any Satellite T.V. Channel every day, provided the publicity shall in no way undermine the prestige of the government. No claim for cost on these accounts will be entertained by the Government. 23. The sole purchaser may appoint stockists, selling agents or sellers for further resale in different parts of the country on his own terms and at his own risk and responsibility. 26. The sole purchaser shall pay the full amount for the tickets actually sole purchaser upon receipt of the invoice from the Government which shall be raised indicating the amount of wholesale rate and adjustment of prizes up to Rs. 5000/- (Rupees five thousand) to be disbursed by the sole purchaser for each lottery draw on the lottery tickets actually sold by the sole purchaser. 27. The sole purchaser shall pay State tax or any other kind of taxes imposed by the other State Governments on sal....
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....ent, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, but does not include any activity that amounts to "manufacture" within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944). Explanation. - For the removal of doubts, it is hereby declared that for the purposes of this clause, - (a) "commission agent" means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person - (i) deals with goods or services or documents of title to such goods or services; or (ii) collects payment of sale price of such goods or services; or (iii) guarantees for collection or payment for such goods or services; or (iv) undertakes any activities relating to such sale or purchase of such goods or services." 4. Service Tax Department issued a notice to the petitioners under the amended Finance Act in 2007 requiring the petitioners to register under the said Act for payment of service tax. Disputing....
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....ng the validity of the Explanation, the issue was left open. However, the judgment of this Court was not interfered. The Hon'ble Supreme Court delivered its judgment on 05.05.2009 reported in 2009(14) S.T.R. 503 (SC) : (2009) 12 SCC 209, titled Union of India & Ors. v. Martin Lottery Agencies Ltd. The relevant observations of the Hon'ble Supreme Court in this regard are quoted hereunder: - " 36. It is, therefore, evident that by reason of an explanation, a substantive law may also be introduced. If a substantive law is introduced, it will have no retrospective effect. The notice issued to the assessee by the appellant has, thus, rightly been held to be liable to be set aside. Subject to the constitutionality of the Act, in view of the explanation appended to this, we are of the opinion that the service tax, if any, would be payable only with effect from May, 2008 and not with retrospective effect. 37. In a case of this nature, the Court must be satisfied that the Parliament did not intend to introduce a substantive change in the law. As stated hereinbefore, for the aforement....
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....ax since then under protest. It is further alleged that now the petitioners have realised that no service tax is payable on the activity undertaken by them in terms of the amended clause (zzzzn) to Section 65(105) of the Finance Act, 1994 and have challenged the same in these petitions before us. 10. Challenge to the amended Clause (zzzzn) to Subsection (105) to Section 65 of the Finance Act, 1994 is primarily on the following two grounds - (A) that the activity being performed by the petitioners does not fall within the purview of "Taxable Service", the transaction between the petitioners and the State of Sikkim simpliciter being a purchase and sale of lottery tickets or at the best an actionable claim; and (B) the conduct of lottery is an act of "betting and gambling", the same being a game of chance, the State Legislature under entry 62 of List II of Schedule 7 to the Constitution of India has exclusive competence to enact law to impose taxes. The Parliament under its residuary legislative power under entry 97 of List I, Schedule 7 to the Constitutio....
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....ticle 246 confers exclusive power upon the Legislature of any State to make laws for such State with respect to any of the matters enumerated in List II in the Seventh Schedule referred to as the "State List". As regards the residuary powers of Legislation are concerned under Article 248, Parliament alone has the power to make any law with respect to any matter not enumerated in the Concurrent List or State List. Clause (2) of Article 248 further empowers the central Parliament to make laws imposing a tax not mentioned in either of the above two lists. In the context of lottery which is "res extra commercium", entry 40 in List I empowers the Parliament to make laws whereas under entry 34 and entry 62 of List II, the State Legislature has power to make laws in respect to "betting and gambling" and levy of taxes thereon respectively. Entries 40 and 97 under List I and entries 34 and 62 under the List II are quoted hereunder:- " SEVENTH SCHEDULE [Article 246] List I - Union List ................................................................................................................. 40. Lotteries organized by the Government of India or the Government of a State.....
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....s various expressions. The relevant being reproduced hereunder: - "2. ............................................................... (c) "distributor or selling agent" means an individual or a firm or a body corporate or other legal entity under law so appointed by the Organising State through an agreement to market and sell lotteries on behalf of the Organising State; ............................................................... (e) "online lottery" means a system created to permit players to purchase lottery tickets generated by the computer or online machine at the lottery terminals where the information about the sale of a ticket and the player's choice of any particular number or combination of numbers is simultaneously registered with the central computer server; (f) "Organising State" means the State Government which conducts the lottery either in its own territory or sells its tickets in the territory of any other State; ............................................................... (h) "sale proceeds" means the amount payable by the distributor to the Organising State in respect of sale of tickets calculated at the face value printed on each ticket....
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....etting and gambling" and the State legislature has power to make regulatory law in respect of "betting and gambling". It goes without saying and as interpreted by a plethora of judicial pronouncements, the conduct of lottery which is a game of chance falls within the ambit, scope and purview of expression "betting and gambling". Entry 34, however, does not empower the State to enact any law imposing any tax upon the activity of betting and gambling like entry 40 of List I. It is Entry 62 that specifically provides for levy of taxes on "betting and gambling". 18. In the backdrop of aforesaid constitutional and statutory provisions, we shall take up the grounds noticed hereinabove for consideration in seriatim. GROUND - A (I) Terms and conditions of Agreement dated 10.08.2009 (Annexure 3) depict the mutual relationship between M/s. Future Gaming Solutions Pvt. Ltd. (petitioner) and the State Government. The preface of the Agreement shows that open tenders were invited for appointment of a purchaser for sale of lottery tickets of denomination of Re.1/- and above organized by the State Government for a period of 5 (five) years. Clause 4 of the Agreement further demonstrates th....
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....s, he has referred to the definition of sale and purchase as provided under the Central Excise Act. Section 2(h) of the Central Excise Act, 1944 defines sale and purchase and reads as under: - " (h) "sale" and "purchase", with their grammatical variations and cognate expressions, mean any transfer of the possession of goods by one person to another in the ordinary course of trade or business for cash or deferred payment or other valuable consideration;" (IV) Regarding the applicability of the above definition to the service tax, reference is made to Section 65-A (121) of the Finance Act, 1994, which reads as under: - " (121) words and expressions used but not defined in this Chapter and defined under Central Excise Act, 1944 (1 of 1944) or the rules made thereunder, shall as far as may be, in relation to service tax as they apply in relation to a _____excise." (V) Admittedly, the expression "sale and purchase" has not been defined in the Finance Act and thus the above definition prescribed in the Central Excise Act shall be applicable to all such transactions which may fall within the p....
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....ll within the above mentioned provision. According to Mr. Razzak, the petitioners arrangement with the State Government for appointment as a buyer and distributor is dehors the provision of Section 4 of the Lotteries (Regulation) Act, 1998. Referring to Section 4(c), it is argued that the State Government alone is entitled to sell the tickets either itself or through distributors or selling agents and thus any other arrangement whereby the sale of the tickets is made by the State Government to a distributor who buys the tickets in bulk and then further sells to selling agents, is impermissible in law. His further submission is that the State sells the lottery tickets on commission basis. The MRP of the ticket is Re.1/- and it is sold at 70 paise per ticket to the petitioners in bulk and the 30% commission received by the petitioners is for purposes of organizing and promoting the sale of the lottery ticket for the State, which activity is nothing but a "service" rendered to the State. Referring to various conditions of the Agreement between the petitioners and the State, it is argued that unsold tickets are returned to the State and refunded. According to him, the only conclusion w....
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....xplanation and introduction of the new provision akin to the Explanation. His submission is that the judgment though challenged before the Hon'ble Supreme Court is operative, there being no interim stay on it. (VIII) To counter the above arguments, Mr. A. R. Madhav Rao, learned counsel appearing for the petitioner, submits that the activity of the petitioners of purchasing and selling the lottery tickets through its stockists and selling agents is a normal business activity of any purchaser of any goods. His submission is that the State has right to sell the tickets either itself or through distributors or selling agents and where the sale is absolute without any further prohibition on resale against the full sale consideration even to a distributor or a selling agent, the transaction is in the nature of sale and purchase and not between the principal and agent. It does not constitute an agency as submitted on behalf of the respondents. As regards the 30% discounted price of the lottery tickets carrying MRP Re.1/- is concerned, his contention is that 30 paise difference between the MRP of the lottery ticket at Re.1/- and the purchase price of 70 paise, is not a commission but a ....
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....rred at all the times by the first petitioners before the authorities that they sold their products to Rallis India on an outright basis in a arms length transaction. There is no statement by the authorities which disputes this. There is no affidavit-in-reply which disputes the correctness of the averment made in the petition. It must, therefore, be accepted that this was the real nature of the transaction between them. This being so, it is immaterial that Rallis India is described as the distributor of the first petitioners." [Emphasis supplied] (X) Above observations are sought to be applied to the present case on the basis of the agreemental stipulations which, inter alia, provide for payment of lump sum sale considerations for the entire financial year. Under Clause 4 of the Agreement the petitioner is required to pay Rs. 10.00 crores p.a. as the minimum guaranteed amount to the State Government for purchase of the tickets irrespective of the fact whether petitioners suffer any loss or earn profit. The contractual stipulations noticed and discussed hereinabove further make it clear that the State Government has no concern with the further sale of the tickets by the petitione....
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....onclusive that the consignee should be described in the contract as an 'agent' or even 'sole agent', or conversely that the transaction should be called as 'sale', although the way in which the parties label the transaction will, typically, play a significant part in the court's determination of the issue. Certain stipulations may be consistent with both sale (and especially sale or return) and agency, and, therefore, cannot be taken as indicative of either: for instance, the transfer to the consignee of the property in goods shipped upon the acceptance of drafts; a provision that the property in goods shall remain in the consignor until disposed of; of the fact that the price of sale to third parties is fixed by the consignor. Exceptionally an agent may be remunerated by keeping the surplus over and above a specified price which is received on account of the principal, while the buyer may be paid a sum described as commission. It is, however, evidence towards a sale that the recipient is entitled to sell at whatever price the recipient thinks fit, accounting to the supplier only for a predetermined sum, and this interpretation is given further support if the recipient is free t....
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....d commission. A supplier who himself fixes the resale price is likely to be a buyer for resale: but the fact that the resale price if fixed by the manufacturer does not necessarily make the supplier an agent, for resale prices are frequently fixed by manufacturers. Exceptionally a buyer for resale may also be paid commission, or an agent remunerated by being allowed to keep the excess over and above a stipulated price. But the making of such a profit by an agent would normally be improper. Conversely, there may be difficulty in deciding whether a person who has agreed to procure goods for another is acting as that other's agent or selling to him. Again, the first question is to ask whether he takes a profit on the resale which will make him a seller, or a commission, in which case he is likely to be an agent and indeed the making of any further profit would usually be improper." (XIII) The Hon'ble Supreme Court in Alwaye Agencies v. Deputy Commission of Agricultural Income Tax : 1998 (Supp) SCC 394, has held as under: - "6. In our opinion, since both the parties have proceeded on the footing that the transactions in question were effected pursuant to the said agreement, th....
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.... of the said company. In respect of the goods in question which were despatched through public carriers, although the invoices were prepared in the names of the consumers of the goods, and the goods were consigned to the destination through public carrier booked to self, as pointed out by the Tribunal, the bills were endorsed and handed over to the assessee. When considered in the light of the agreement, these circumstances clearly show that in respect of these transactions the property in the goods despatched passed to the distributor on the bills being endorsed and handed over to the distributors." (XIV) A similar view has been expressed by the Hon'ble Supreme Court in Gordon Woodroffe & Co. v. Shaik M.A. Majid & Co. : AIR 1967 SC 181. "9. It is well-established that even an agent can become a purchaser when as agent pays the price to the principal on his own responsibility. In Ex parte White, in re Nevil, (1871) 6 Ch. 397 t & Co. were in the habit of sending goods for sale to N who was a partner in the firm of N & Co., but received these goods on his private account. The course of dealing between T & Co. and N....
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.... allowed a deduction of 10 per cent by way of commission on that price, the manufacturers had no concern at what rate the sole selling agents sold the goods to customers, it was clear from these facts that the sale by the selling agents to customers was a transaction in which the manufacturers were not interested and there was no privity of contract between the manufacturers and the ultimate purchasers." (XV) In furtherance of his submission on the above questions, Mr. A. R. Madhav Rao, Ld. Counsel appearing for the petitioner, has also produced a Model Agreement circulated by the Ministry of Home Affairs, Government of India, vide its letter dated 28.12.2011 to all the Chief Secretaries of States to be signed by the State Government and agent for running the lottery business including Online lottery. Referring to some of the conditions of this Agreement, it is stated that mutual arrangement between the State Government organising and conducting lottery business and the distributor/agent referred to under the provisions of the regulatory law and the rules made thereunder is also understood by the Government....
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....ot desired the Model Agreement to be executed by the petitioners. This Agreement thus cannot render much assistance to the petitioner. Mr. Rao, however, submits that the Agreement may not be construed to lay down any condition of contract between the State Government and the petitioner, nonetheless, it does indicate the intention of the Central Government in what manner the provisions of the regulatory law and the rules made thereunder have been understood and interpreted by the Central Government, the State Government as also the distributor appointed by the State. His submission is that all the lottery organizing States like Sikkim and Kerala have entered into similar kinds of agreements with their distributors wherein the relationship between the State Government organizing lottery and the distributors are that of a seller and buyer and not principal and agent. There is absolutely no dispute that from the nature of arrangement made between the State Government and the petitioner, who is termed as a distributor, it is evident that the State Government is selling its entire lot of lottery tickets published by it through the distributor (petitioner) for minimum guaranteed sale pric....
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....n approbation. But, in order to bring a transaction within this rule, the circumstances must show that the buyer has an option to purchase on the statutory terms, that is to say, if and when the specific acts or conduct on his part set out in the rule have occurred. For this reason, it is necessary to distinguish certain closely related forms of transaction where a different intention appears." (XVIII) The sum and substance of the above discussion is that once the transaction between two contracting parties involves only sale and purchase including "on sale or return", the relationship is simply that of a seller and purchaser, it does not constitute any service. In Bharat Sanchar Nigam Ltd. & Anr. v. Union of India & Ors. : (2006) 3 SCC 1, it has been held as under: - " 88. No one denies the legislative competence of the States to levy sales tax on sales provided that the necessary concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction. This does not however allow the State to entrench upon the Union List and tax services by including the cost of s....
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.... from an indivisible contract. It may consist of different elements providing for attracting different nature of levy. It is, therefore, difficult to hold that in a case of this nature, sales tax would be payable on the value of the entire contract, irrespective of the element of service provided. The approach of the assessing authority, to us, thus, appears to be correct." (XX) In Indian Railways C. & T. Corpn. Ltd. v. Govt. of NCT of Delhi : 2010 (20) S.T.R. 437 (Del.), the question before Delhi High Court was whether the supplier of food and beverages to the Railways for consumption of passenger travelling therein includes the element of service and subject to levy of service tax. Considering this question, Delhi High Court observed as under: " 4. The next question raised is with regard to the respondent's liability for service tax on collections for disposal of garbage. Even though there is no written agreement for the collections, the Tribunal, on facts, found that the charges represent value for the materials sold and not for any service rendered by the respondent. So much so, we do not find any gr....
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....y tickets through electronic media or any other mode, further suggests that the petitioner is facilitating the organisation of the lottery, its promotion and sale in various parts of the Country. According to Mr. Razzak, this, in true spirit, constitutes a service for which the petitioner is getting 30% commission by way of discounted price. Opposing this contention, the petitioner's case is that the 30% discounted price is for the purposes of the petitioner and his stockists/sellers profit components and other expenditure that would be incurred for sale of the lottery tickets. According to Mr. Rao, the discounted price in any sale transaction is normal and common business practice between a seller and a purchaser. After the lottery tickets are printed by the State Government, the same are required to be delivered to the petitioner at the agreed destination in terms of clause 13 of the Agreement and thereafter, it is the sole responsibility of the petitioner to sell the lottery tickets through stockists, selling agents or retail sellers as may be deemed convenient and the State Government can neither interfere with nor have any control over the stockists and selling agents appointe....
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....e manufacturer, such a buyer is different from a distributor and does not create an agency. The relevant observations are noticed hereunder:- " 10. Shri Dalal submitted that the agreement between the petitioners and Voltas is really not a distributorship agreement but is in the nature of agreement agency. The learned counsel relied upon Division Bench decision of this Court in the case of Amer Dye-Chem Limited and another v. Union of India and another reported in 1981 Excise Law Times, 348 and submitted that the mere use of the word 'Distributor' would not lead to the conclusion that the agreement is not an agreement of agency. The Division Bench observed that the distributor in the commercial world is understood to be person who distributes goods of the manufacturer to the consumer and in so doing he acts for and on behalf of the manufacturer. The distributor normally is, therefore, an agent of the manufacturer for the purpose of reaching out the goods to the consumers. Shri Dalal relied upon this observation and claims that Voltas were merely acting as Agents of the petitioners for reaching out the tracto....
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....on to avoid the duty. Secondly, the conditions requiring Voltas to set up Sales Organisation and to provide after-sale service are the usual conditions provided in the agreement with the wholesale buyer and such conditions were also in existence in the agreement which was considered by the Supreme Court in the Voltas' case. The fact that the Voltas were required to store the tractors till they are sold to the consumers cannot be treated as transfer of manufacturer's activity in favour of the buyer. The fact that the expenses in regard to the advertisements were to be shared by the petitioners and Voltas merely indicate that both the wholesale buyer and the petitioners were interested in having greater production and sale thereof and that condition, in my judgment, cannot be considered as relevant to reach the conclusion that the agreement was not at arms length." (XXIV) In Pioneer Tools and Appliances (P) Ltd. v. Union of India : 1989 (42) E.L.T. 384 (Bom.), it has been held as under:- "5. This judgment clearly demonstrates the fallacy of the reasoning adopted by the first respondent in the order passed in rev....
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....es of intending purchasers the value of the appellant's product, but such enhancement of value ensured not only for the benefit of the appellant; it also ensured for the benefit of the dealer for, by reason thereof, the dealer got to sell more and earn a larger profit. The guarantee attached to the appellant's products specified that they could be repaired during the guarantee period by the appellant's dealers anywhere in the country. Thus, though one dealer might have to repair goods sold by another dealer and incur costs in that regard, he also had the benefit of having the goods he sold reparable throughout the country. The provision as to after sales service, therefore, benefitted not only the appellant; it was a provision of mutual benefit to the appellant and the dealer." (XXVI) Similarly, in Collector of Central Excise, Baroda v. Besta Cosmetics Ltd. reported as 2005 (183) E.L.T. 122 (SC), it has been held that the clause of advertisement being purely optional would not militate against the price which is at arm's length. The following observations are relevant: - " 2. In addition, we may note that the releva....
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....p; " 4. The petitioners receive in bulk quantities of lottery tickets from the State Government. They are given a discount which is on a slab system. Exhibit P-1 is the governing order issued in 1998. The agents commission presently payable is as follows: • For the purchase of 100 tickets 25% • For the purchase of 101 and above 27.5% • For the purchase of 50,001 and above 28% • For the purchase of 70,00,001 and above 28.5% 5. The import of the order will be that for a ticket worth Re. 1 an agent need pay between 75 paise to 71.5 paise only, depending on the off take. The petitioner submits that there is no agency agreement, and the petitioners are termed as agents only on a loose basis. From the nature of the transactions, the Government and the petitioners deal as principal to principal. The tickets purchased are thereafter distributed through other agents, and sub-agents, according to them, on commission basis. They point out that after purchase of the tickets, it is not the Government's look out as to how and when they are divided or distributed, and there is no control over the affairs thereaft....
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....anding the circumstance the petitioners receive it for 72 paise. The State, therefore, releases a ticket, receiving 72 paise. The petitioner may sell the ticket so obtained at any price of their choice. It is not the State's business to enquire into the matter at all. Therefore, it is difficult to assume that the petitioners have in all cases made a margin of 28 paise by the mere purchase of the ticket. His case is that resells it for 72.5 paise, and he derives a profit of half paise per ticket. He may be right or that may be a misleading statement. But he has been able to obtain a ticket worth Re. 1 for 72 paise. His total input therefore is 72 paise, and in that context it is difficult to describe the transaction as one whereby because of investment of 72 paise he has simultaneously made a profit of 28 paise. Several "ifs" have to be employed, which do not exist in real life, for this court to accept the case of the Department that by the factum of purchase he had already made a profit. .............................................................................. 23. Therefore, the demand of tax is to be shown as one on the income of the person concerned. There is neither ....
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.... but a discount and did not have the characteristics of commission. ..................................................................... 9. From all that has been noted above, it is evident that the distributor was to purchase products at pre-determined price from the Assessee for selling the same within specified area. The products were to be purchased by the distributor against 100% advance payment or may be some times on credit at the discretion of the Assessee. Both the Assessee and the distributor have been collecting and paying their sales tax separately. Both the parties have clearly understood and accepted the agreement between them. That being the arrangement between the Assessee and the distributor, it could not be said that the relation between them was that of principal-agent. On the other hand it was clearly stipulated to be an agreement between them on principal-to-principal basis. Both the Commissioner (Appeals) and also the ITAT rightly held that the payments being made by the Assessee to the distributor were incentives and discounts and not commissions. We find no infirmity in the findings of the Commissioner (Appeals) and also ITAT." (XXIX) It is the com....
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....provided; (b) ............................................................................................... (c) ..........................................................................................." (XXX) Rule 6 of the Service Tax Rules, 1994 provides modes for payment of service tax. The Government of India issued Notification No. 49/2010-Service Tax dated 8^th October, 2010 introducing sub-rule 7(C) under Rule 6 providing for the mode of payment of service tax as regards the promotion, marketing, organizing or in any manner assisting in organizing lottery is concerned. The relevant extract of the said Rule reads as under: - "(7C) The distributor or selling agent, liable to pay service tax of promotion, marketing, organizing or in any other manner assisting in organizing lottery, shall have the option to pay an amount at the rate specified in column (2) of the Table given below, subject to the conditions specified in the corresponding entry in column (3) of the said Table, instead of paying service tax at the rate specified in section 66B of Chapter V of the said Act: Table Sl. No. Rate Condition (1) (2) (3) 1. Rs.7000/- on every Rs. ....
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.... Mr. Razzak's submission the 30% discount allowed by the State Government to the petitioners is for rendering service, whereas admittedly 70 paise is the price of the lottery ticket. According to respondents own case only 30% of the gross value can be taken as the valuation for providing service if at all the activity of petitioners is to be construed as a service falling within the definition of "taxable service". The Ministry of Finance (Department of Revenue), Central Board of Excise and Customs, Government of India has also issued a clarificatory circular dated 10.11.2006 laying down the criterion for levy of service tax. The relevant extract is reproduced hereunder:- "4. To levy service tax, the following criteria are to be satisfied: The service provided or to be provided satisfies the definition of taxable service. There should be receipt of consideration for the taxable service provided." (XXXII) In view of the above clarification, it is pleaded on behalf of the petitioners that receipt of consideration for providing "taxable service" is one of the essential ingredients to establish that any service is a "ta....
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....laced on a race are pooled and then paid to those holding winning tickets." "gambling - The act of risking something of value, esp. money, for a chance to win a prize." Above definitions include any act by which a person participates in a game of chances by risking money for purchase of ticket to win a prize. From these definitions and the definition of lottery under the regulatory Act, it is apparent that lottery is also a game of chance where a ticket-holder risks his money to win a prize on a chance. Section 294A of the IPC punishes a person who keeps any office or place for the purpose of drawing any lottery or even the proposal to pay any money or to deliver any goods on any event or contingency of any ticket or any figure in the lottery as an offence except where it is run or authorized by the State Government. The lottery, per se, does fall within the expressions "betting and gambling" which Act is pernicious in nature. It gets a legal umbrella only if it is run or authorized by the State Govt. subject to the conditions enumerated under Section 4 of the Lotteries (Regulation) Act, 1998. It is a privilege of t....
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.... lotteries and other lotteries remains the same, by merely placing the apparel of the State with authority of law, would not make any difference; it remains gambling as element of chance persists with no element of skill. .................... " (c) A similar view has been expressed by the Hon'ble Supreme Court in case of Union of India & Ors. v. Martin Lottery Agencies Limited : (2009) 12 SCC 209. The relevant observations are reproduced hereunder:- " 17. We fail to persuade ourselves to agree with the aforementioned submission. The law, as it stands today (although it is possible that this Court in future may take a different view), recognises lottery to be gambling. Gambling is res extra commercium as has been held by this Court in State of Bombay v. R.M.D. Chamarbaugwala and B.R. Enterprises v. State of U.P." Thus, in view of the clear and categorical opinion of the Apex Court, we have no hesitation in concluding that the conduct of lottery is an act of "betting and gambling" envisaged under entries 34 and 62 of List II to Schedule 7. (ii) whether it is within the exclusive domain of State legis....
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....ving been conferred and specified under separate entries in Seventh Schedule. (e) In case of State of West Bengal & Ors. v. Purvi Communication (P) Ltd. & Ors. : (2005) 3 SCC 711, it has been held by the Hon'ble Supreme Court that the power to regulate does not include power to tax. The relevant observations are noticed hereunder:- " 35. The Cable Television Networks (Regulation) Act, 1995, a Central legislation, has been enacted to regulate the operation of cable television networks in the country and for matters connected therewith. This enactment does not, in our opinion, fetter the legislative power or competence of the State to levy tax on luxuries including taxes on entertainments, amusements, betting and gambling falling under Entry 62 of List II of the Seventh Schedule to the Constitution. The power of regulation or control under the said Central enactment is separate and distinct from the power of taxation by the State Legislature under Entry 62 of List II; being a specific power, the power of taxation cannot be cut down or fettered by the general power of regulation as exercised by Parliament in enacting t....
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....e Legislature under entry 49 of List II - i.e. Taxes on lands and buildings. It was held by the High Court and approved by the Apex Court that the power to levy tax on agricultural land is not contemplated by entry 49, List II. However, the amended Act was struck down by the High Court being beyond the competence of the Parliament by interpreting entry 86 of List I where under agricultural land was excluded from capital value of the assets. The amendment brought by the Finance Act was claimed to be under the residuary power under entry 97, List I. While considering this question, the Constitution Bench of the Hon'ble Supreme Court held as under:- "10. It was further urged by Mr. Setalvad that the proper way of testing the validity of a parliamentary statute under our Constitution was first to see whether the parliamentary legislation was with respect to a matter or tax mentioned in List II, if it was not, no other question would arise. The learned counsel for the respondent contended tha this manner of enquiry had not been even hinted in any of the decisions of the Court during the last 20 years of its existence and th....
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....No question has to be asked about List I. If the answer is in the negative then it follows that Parliament has power to make laws with respect to that matter of tax. ..................................................................................................... 47. The last sentence applies much more to the Constitution of a sovereign democratic republic. It is true that there are some limitations in Part III of the Constitution on the Legislatures in India but they are of a different character. They have nothing to do with legislative competence. If this is the true scope of residuary powers of Parliament, then we are unable to see why we should not, when dealing with a Central Act, enquire whether it is legislation in respect of any matter in List II for this is the only field regarding which there is a prohibition against Parliament. If a Central Act does not enter or invade these prohibited fields there is no point in trying to decide as to under which entry or entries of List I or List III a Central Act would rightly fit in. 67. ..................................... Be that as it may, we have the three lists and a residuary power and therefore it seems to us that i....
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....ies Ltd. & Ors. : (2004) 10 SCC 201 again examined the scope of entry 97 List I and Article 248 to levy tax under the residuary power. The relevant observations are quoted as under:- " 100. Article 265 mandates - no tax shall be levied or collected except by authority of law. The scheme of the Seventh Schedule reveals an exhaustive enumeration of legislative subjects, considerably enlarged over the predecessor Government of India Act. Entry 97 in List I confers residuary powers on Parliament. Article 248 of the Constitution which speaks of residuary powers of legislation confers exclusive power on Parliament to make any law with respect to any matter not enumerated in the Concurrent List or the State List. At the same time, it provides that such residuary power shall include the power to making any law imposing a tax not mentioned in either of those Lists. It is, thus, clear that if any power to tax is clearly mentioned in List II, the same would not be available to be exercised by Parliament based on the assumption of residuary power." (j) Hon'ble Bench relied upon the Constitution Bench judgment ....
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....r-State trade and commerce (Entry 42 List I Schedule 7) did not carry with it the power to tax the sale of goods in inter-State trade and commerce before the insertion of Entry 92-A in List I and such power belonged to the States under Entry 54 in List II. Entry 97 in List I also militated against the contention that the power to tax is an incidental power under our Constitution (See Seervai, H.M. : Constitutional Law of India, 4th/Silver Jubilee Edn., Vol. 3, para 22.20.)" (l) In N. V. Marketing Pvt. Ltd. v. State of Maharashtra & Ors. : 2009 (III) (8) Bom. L.R. 3397, it has been ruled that even though the power of regulation of lotteries vest in the Parliament in terms of entry 40 of List I, power to tax is not an incidental power. The Hon'ble Bombay High Court relying upon West Bengal v. Kesoram Industries Ltd. & Ors. : (2004) 10 SCC 201 and various other judgments, while considering the validity of State law enacted by the Maharashtra State imposing tax on lotteries, observed as under:- "3. It is the contention of the Petitioners that the legislature of State of Maharashtra has no legislative power t....
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....s under: - "46. Therefore, taxing entries must be construed with clarity and precision so as to maintain such exclusivity, and a construction of a taxation entry which may lead to overlapping must be eschewed. If the taxing power is within a particular legislative field, it would follow that other fields in the legislative lists must be construed to exclude this field so that there is no possibility of legislative trespass. .................................................................................... 49. Under the three lists of the Seventh Schedule to the Indian Constitution a taxation entry in a legislative list may be with respect to both. Article 246 makes it clear that the exclusive powers conferred on Parliament or the States to legislate on a particular matter includes the power to legislate with respect to that matter. Hence, where the entry describes an object to tax, all taxable events pertaining to the object are within that field of legislation unless the even is specifically provided for elsewhere under a different legislative head. Where there is the possibility of legislative overlap, courts....
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....f Entry 62 of List II this would not mean that the word "luxuries" would be restricted to entertainments, amusements, betting and gambling but would only emphasise the attribute which is common to the group. If luxuries is understood as meaning something which is purely for enjoyment and beyond the necessities of life, there can be no doubt that entertainments, amusements, betting and gambling would come within such understanding. Additionally, entertainments, amusements, betting and gambling arfe all activities. "Luxuries" is also capable of meaning an activity and has primarily and traditionally been defined as such. It is only derivatively and recently used to connote an article of luxury. One can assume that the coupling of these taxes under one entry was not fortuitous but because of these common characteristics." (n) It has been vehemently argued by Mr. Razzaq that the service tax levied vide clause (zzzzn) under sub-section (105) of Section 65 is a tax on various activities comprising services rendered by the distributors to the State in promotion, marketing, organizing of lottery, etc. It is not a tax on betting and gambling, per se and is beyond the purview of entry ....
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....ers of the lotteries. The question that fell for consideration was whether tax on promoters of lotteries, who do not gamble is tax on betting and gambling under entry 62 List II. Rejecting the challenge and upholding the validity of the levy on promoters, the Hon'ble Supreme Court observed as under:- "(23) The next point urged is that although the Act may come under Entry 34, the taxing provisions of s. 12A cannot be said to impose a tax on betting and gambling under Entry 62 but imposes tax on trade under Entry 60. Once it is held that the impugned Act is on the topic of betting and gambling under Entry 34, the tax imposed by such a statute, one would think, would be a tax on betting and gambling under Entry 62. The Appeal Court has expressed the view that s. 12A does not fall within Entry 62, for it does not impose a tax on the gambler but imposes a tax on the petitioners who do not themselves gamble but who only promote the prize competitions. So far as the promoters are concerned, the tax levied from them can only be regarded as tax on the trade of prize competitions carried on by them. This, with respect, is taking a very ....
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.... of sending the visual or audio-viisual signals to subcable operators, and instantly retransmitting such signals to individual subscribers for entertaining them through their franchisees. The respondents' act is, no doubt, an act of offering entertainment to the subscribers and/or viewers. The respondent is very much directly and closely involved in the act of offering or providing entertainment to subscribers who are on his record. For the fact of offering or providing entertainment to the subscribers and/or viewers, the respondents receive charges, which are realized or collected by their franchisee from the ultimate subscribers. Their franchisee, called as sub-cable operator under the said 1982 Act having no independent role to offer or provide entertainments to the subscribers inasmuch as franchisees have to depend entirely on the respondents' communication network and this communication network of the respondents consists of receiving and sending visual images and audio and other information for preparation of the subscribers and/or viewers; without the communication network service of the respondents, no entertainments can be offered or provided to the subscribers and/or view....
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.... declaration of draw and even distribution of prize to the winner fall within the purview of expression 'betting and gambling'. Thus power to levy tax on organization, promotion and marketing of lottery being an act of betting and gambling comes within the exclusive domain of entry 62 of List II. (t) It is also settled legal position that where the entries under different Lists empower the respective legislatures to enact law on any subject matter and the question arises regarding the legislative competence of the legislative bodies, the doctrine of pith and substance is to be applied to find out the real intention of the legislative entry and the object of enacting a law. As observed in State of West Bengal v. Kesoram Industries Ltd. (supra) if any law enacted by Parliament is not traceable to any legislative entry in List II or List III, it is irrelevant whether the power of the Parliament is traceable to a specific entry and Parliament shall be deemed to have legislative competence. Its natural corollary would be if power to enact law on a subject matter including levy of taxes is traceable to any entry in List II and List III, residuary power under entry 97 of List I read wi....
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....titution, unless the context otherwise requires, the following expressions have the meanings hereby respectively assigned to them, that is to say - ......................................................................................................... ............................................................................................. (28) "taxation" includes the imposition of any tax or impost, whether general or local or special, and "tax" shall be construed accordingly; ......................................................................................................... ............................................................................................." (x) This definition is of widest possible amplitude and encompasses within its field any kind of tax that could be visualized or conceptualized. In D. G. Gose and Co. Pvt. Ltd. & Ors. v. State of Kerala & Anr. : (1980) 2 SCC 410, a Constitution Bench of the Hon'ble Supreme Court, while considering clause (28) of Article 366 of the Constitution, observed as under:- "5. The word "tax" in its widest sense includes a....
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....ament to impose service tax has to be conceded by virtue of entry 97 List I read with Article 248 of the Constitution as held by Hon'ble Supreme Court in various judgments noticed by us hereinbefore and later part of this judgment. However, such legislative power is prohibited in respect to any subject matter where the power to impose or levy tax has been conferred upon the State Legislature in List II (State List) or the Provincial Legislature and the Parliament under List III (Concurrent List). It is also pertinent to say that Parliament would also be deprived of the residuary power in respect to any subject matter falling even in the List I where such power is traceable to any of the entries contained therein i.e. entries 1 to 96. In our view the residuary powers of the Parliament would come into play only where none of the entries in any of the Lists provide for a legislative field. As held by the Hon'ble Apex Court in State of West Bengal v. Kesoram Industries Ltd. (supra), the only embargo in the exercise of the residuary power of Parliament under entry 97 List I read with Article 248 of the Constitution would be nonexistence of legislative power of any of the Legislatures un....
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....y to decide the issue. It is contended that the petitioner has directly approached this Court without having approached the competent adjudicating authority in this regard. Under such circumstances, the petitioner should be directed to approach the competent adjudicating authority for seeking adjudication regarding levy of service tax on the service rendered by it. He has placed reliance upon the judgment of the Apex Court reported as Association of Leasing & Financial Service Companies v. Union of India : (2011) 2 SCC 352. (ab) In the above case the controversy before the Hon'ble Supreme Court was with regard to levy of service tax on the transaction of equipment leasing and hire purchases undertaken by non-banking financial companies. The plea of the writ petitioners who challenged the vires of the levy was that the transaction of equipment leasing and hire purchase and financing has been constitutionally defined as sale and purchase under Article 366 (29A) and thus falls within the exclusive competence of State Legislature under entry 54 of List II, hence the Parliament in exercise of its legislative competence under entry 97 of List I of Seventh Schedule of the Constitution ....
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....unt representing as interest i.e. the difference between the instalment paid towards repayment of the lease amount and the principal amount in such instalments paid (see Notification No. 4/2006 - Service Tax dated 1-3-2006). In other words, service tax is leviable only on 10% of the interest portion. (See also Circular F. No. B.11/1/2001-TRU dated 9-7-2001 in which it has been clarified that service tax, in the case of financial leasing including equipment leasing and hire purchase, will be leviable only on the lease management fees/processing fees/documentation charges recovered at the time of entering into the agreement and on the finance/interest charges recovered in equated monthly instalments and not on the principal amount.) Merely because for valuation purposes inter alia "finance/interest charges" are taken into account and merely because service tax is imposed on financial services with reference to "hiring/interest" charges, the impugned tax does not cease to be service tax and nor does it become tax on hire-purchase/leasing transactions under Article 366(29-A) read with Entry 54, List II. Thus, while the State Legislature is competent to impose tax on "sale" by legisl....
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....he Hon'ble Supreme Court held as under: - "58. A tax on services rendered by mandap-keepers and outdoor caterers is in pith and substance, a tax on services and not a tax on sale of goods or on hirepurchase activities. Section 65 clause (41) sub-clause (p) of the Finance Act, 1994, defines taxable service (which is the subject-matter of levy of service tax) as any service provided to a customer "by a mandap-keeper in relation to the use of a mandap in any manner including the facilities provided to [a customer] in relation to such use and also the services, if any, rendered as a caterer". The nature and character of this service tax is evident from the fact that the transaction between a mandap keeper and his customer is definitely not in the nature of a sale or hire-purchase of goods. It is essentially that of providing a service. In fact, as pointed out earlier, the manner of service provided assumes predominance over the providing of food in such situations which is a definite indicator of the supremacy of the service aspect. The legislature in its wisdom noticed the said supremacy and identified the same as a potential regi....
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.... a chartered accountant/cost accountant/architect for consideration. Service tax is a tax on each activity undertaken by a chartered accountant/cost accountant or an architect. The cost accountant/chartered accountant/architect charges his client for advice or for auditing of accounts. Similarly, a cost accountant charges his client for advice as well as doing the work of costing. For each transaction or contract, the chartered accountant/cost accountant renders profession based services. The activity undertaken by the chartered accountant or the cost accountant or an architect has two aspects. From the point of view of the chartered accountant/cost accountant it is an activity undertaken by him based on his performance and skill. But from the point of view of his client, the chartered accountant/cost accountant is his service provider. It is a tax on "services". The activity undertaken by the chartered accountant or cost accountant is similar to saleable or marketable commodities produced by the assessee and cleared by the assessee for home consumption under the Central Excise Act. 35. For each contract, tax is levied under the F....
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....e was upheld. Similarly in Assn. of Leasing & Financial Service Companies case levy of service tax on 10% of the gross contract value was upheld being a tax on component of service. (ak) In the present case, undisputedly the lottery ticket is sold as a good by the State Government to the petitioners at the discounted value of 70 paise per ticket as against its gross value/ MRP of Re.1/-. The predominant part of the transaction is sale of goods. While considering the discount of 30% to the petitioners on the MRP, we have held that the discount is a normal trade practice in any transaction of sale and purchase. If the seller sells the goods at the MRP to its ultimate consumer, no intermediary will sell the goods unless he gets a discount to meet the expenditure for establishment, logistics and some component of profit. The State Government is unable to sell the tickets to the ultimate buyers and for that purpose the petitioners are appointed as stockists or distributors on payment of full sale consideration on discounted price. Further the sale by the petitioners to their stockists, selling agents etc. is on discounted price from MRP after keeping the establishment and other expen....