TaxTMI 
TaxTMI 
2015 (10) TMI 1114
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....an Companies Act, 1956, who are engaged in the business of sale of paper and online lottery tickets respectively organised by the Government of Sikkim. Petitioner in WP(C) No.39 of 2015, namely, M/s. Future Gaming Solutions Pvt. Ltd., dealing with paper lottery tickets, entered into an Agreement dated 24-01-2015 [Annexure P-1 (collectively)] for 5 (five) years whereby Petitioner procures the lottery tickets in bulk from the Government and resells the same to the public at large through various agents, stockists, resellers, etc., whereas the Petitioner in WP(C) No.40 of 2015, namely, M/s. Summit Online Trade Solutions Pvt. Ltd., dealing with online lottery tickets, entered into an Agreement with the State of Sikkim on 09-05-2005 followed by a Supplementary Agreements dated 25-04- 2008 and 09-11-2015 [Annexure P-1 (collectively)]. 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. 3. The Petitioners are aggrieved by the enforcement of the provision of Finance Act, 1994, as amended by the Finance Act, 2015, u....
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....ax cannot be imposed by a Parliamentary Law on lottery tickets in view of List II of Seventh Schedule of the Constitution of India under Entry 34 of which the subject-matter of "betting and gambling" and the subject-matter of "taxes on betting and gambling" under Entry 62, fall within the sole competence of the State Legislature and, therefore, the levy of service tax is ultra vires the Constitution of India. The impugned letter dated 25- 05-2015 in WP(C) No.39 of 2015 and letters dated 18- 05-2015 and 12-06-2015 to the Petitioner-Company in WP(C) No.40 of 2015 and the action of the Respondents to enforce the provisions of the Finance Act, 1994 (as amended by the Finance Act, 2015) are thus illegal and without jurisdiction. 8. It is next contended that vide Notification No.7/2015-ST dated 01-03-2015, Annexure P4, in WP(C) No.39 of 2015, service tax under reverse charge is imposed on the services provided by the selling or marketing agent of lottery tickets to the Petitioners. It is stated firstly, that the activity of the agents of the Petitioners are not covered under Notification No.7/2015-ST as they are not engaged in providing any services but, in buying and selling of ticke....
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.... was clarified by order dated 24-06-2015 in Review Petitions No.04 and 05 of 2015 permitting the State Government to conduct the proposed draws till 12-07-2015 for which the tickets were already in circulation. Therefore, it is the contention of the Petitioners that though the agreement dated 24-01-2015 entered into between the Petitioner in WP(C) No.39 of 2014 and agreement dated 09-05-2005 followed by a supplementary agreements dated 25-04-2008 and 09-11-2015 in WP(C) No.40 of 2014 the State Government had been set aside, service tax liabilities on the Petitioners, on the draws conducted till 12-07-2015 still remained. Further, the Petitioners having obtained centralised registration under service tax in the State of Sikkim in respect of lotteries of the State of Sikkim sold in other States and of others States in the State of Sikkim, it had a valid cause of action to agitate the issue before this Court. 11. It is the contention of the Petitioners that the provisions construed by this Court in Future Gaming Case 2014 (supra) and Future Gaming Case 2015 (supra) have since been amended with the objective of levying service tax on the distributors or selling agents of lottery. Bu....
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....endments to the Finance Act, 1994 by the Finance Act, 2015, covers only those parties who are facilitating transaction in actionable claims. It is stated that prior to the amendment, 'service' was defined under Clause (44) of Section 65B to mean any activity carried out by a person for another for consideration and included a declared service, but, did not include an activity which constituted merely a transaction in money or actionable claims. It is stated that by the amendment to Clause (44) of Section 65B of the Finance Act, 1994, by the Finance Act, 2015, an Explanation has been inserted to provide that the transaction in money or actionable claim shall not include "............ any activity carried out, for a consideration in relation to, or for facilitation of, a transaction in money or actionable claim". Thus, the amendment contemplates any activity carried out "in relation to" or "for facilitation of" for a consideration, a transaction in actionable claims. In other words, the activity for a consideration has to be in relation to an actionable claim for facilitation of an actionable claim. Thus, relying upon Association of Leasing and Financial Service Companies vs.....
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....Clause (44) of Section 65B of the Finance Act, 1994, vide the Finance Act, 2005, would bring within its ambit only such activity of lottery distributors or selling agents, that is carried out in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner. It is not the mere buying and selling of lottery tickets by a distributor or lottery agent that come under the category of any activity for consideration in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner. Since the activity of the Petitioners are not for any consideration its activity would fall outside the scope of the definition of 'service' under the Finance Act, 1994, as amended by the Finance Act, 2015. The Petitioners are not carrying out their activities for someone else but are buying and selling the tickets and, therefore, is not promoting/marketing the lottery tickets for the State Government but is actually doing it for themselves. In other words, where the title to the lottery tickets passes from the State Government to the distributor or selling ag....
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....hance including lottery, is an activity falling under the expression "betting and gambling" which is in the domain of the State Legislature and the Centre has no power to tax such an activity. Thus, the amendments introduced by the Finance Act, 2015, is ultra vires the Constitution and, therefore, deserve to be struck down. 19. Referring to the case of Association of Leasing and Financial Service Companies (supra), it is asserted that since service tax can be levied only on that amount which is received for providing services to the State Government, question of levying of service tax on the Petitioners does not arise at all. Further, Circular No. 354/59/2006-TRU dated 10-11-2006 has been relied upon by which the Central Board of Excise and Customs (CBEC) has clarified that service tax can be levied only when a consideration is received for the taxable services provided. This Circular, having been issued under Section 37B of the Central Excise Act, 1994, which is applicable to Finance Act, 1994 in terms of Section 83 of that Act, is binding on the field formations of the department as has been held in various decisions of the Hon'ble Supreme Court including Commissioner of C....
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....ded provisions seek to charge service tax on an activity for a consideration in relation to or for facilitation of a transaction in actionable claim. It is the case of the Petitioners that since the Petitioners are neither doing any activity for consideration in relation to a transaction in actionable claim nor for facilitation of a transaction in actionable claim but are simply buying and selling lottery tickets, the first part of Explanation 2 to Clause (44) to Section 65B has no relevance so far as the Petitioners are concerned. 23. Referring to the Future Gaming Case 2014 (supra), it is submitted that this Court has held that buying and selling lottery tickets is nothing but a transaction in actionable claim on the strength of the Constitutional Bench decision of the Hon'ble Supreme Court in Sunrise Associates (supra). It is then contended that under the Finance Act, 2015, the distributor or the selling agent liable to pay service tax in the activities of the selling agent vide Notification No.7/2015-ST by which Notification No.30/2012 dated 20-06-2012 was amended. As a consequence, the distributor or the selling agent to the State Government is additionally liable to pa....
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....te Legislature in view of a clear distinction between "a general power of regulation" and "power to tax". Relying upon State of W.B. and Others vs. Purvi Communication (P) Ltd. and Others : (2005) 3 SCC 711, Future Gaming Case 2015 (supra) and the Constitutional Bench judgment in M/s. R.M.D.C. (Mysore) Private Ltd. vs. State of Mysore : AIR 1962 SC 594 and State of W. B. vs. Kesoram Industries Ltd. and Others : (2004) 10 SCC 201, it is stated that under Entry 40 of List I, Parliament is competent to enact only in respect of lotteries as a species of betting and gambling and that such law could only be regulatory in nature and nothing beyond that. 26. It is further submitted that Parliament would have been empowered to levy such tax under Entry 97 of List I to the Seventh Schedule of the Constitution of India if the subject-matter of the Legislation is not covered under any of the Entries under Lists II and III of the Seventh Schedule. Article 248 which is the source of the power of the Parliament to make any law clearly provides that it can do so only in respect of matters not enumerated in the "State List" or the "Concurrent List". It does not extend to make law for imposition ....
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.... so on, ultimately to the final consumer which is analogous to the sale of goods. 29. Referring to the distinction between "an agent" and "a purchaser" as defined in Benjamin's Sale of Goods, 8th Edition, it was submitted that where the distributor or the purchaser acts as a wholesaler on payment of the total sale price, he is a buyer and not an agent. Reliance was also placed upon Alwaye Agencies vs. Dy. Commissioner of Agricultural Income Tax and Sales Tax, Ernakulam : 1988 (Supp) SCC 394. Relying upon Bowstead & Reynolds on Agency, 16th Edition; Mahindra and Mahindra Limited vs. Union of India and Another : 1984 (16) ELT 76 (Bom), Pioneer Tools and Appliances (P) Ltd. vs. Union of India : 1989 (42) ELT 384 (Bom). 30. It is submitted that when the entirety of transaction as in the present case is on a principal to principal basis, no demand of service tax would arise. Referring to the case of Laghu Udyog Bharati and Another vs. Union of India and Others : (1999) 6 SCC 418 and All India Federation of Tax Practitioners and Others vs. Union of India and Others : (2007) 7 SCC 527, it was submitted that a transaction of sale as in the present case is not amenable to service ....
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....5 of the Constitution of India which prescribes that no tax can be levied or collected except by the authority of law. It is submitted that the Petitioner have been required to pay service tax by their letter dated 25-05-2015 on the basis of the Service Tax Rules, 1994 (as amended) which is a Subordinate Legislation. As per the Petitioners, in the Constitutional Scheme and in terms of Article 265 it is trite that tax cannot be levied by way of Subordinate Legislation. Reliance on this has been placed on State of Kerala vs. Madras Rubber Factory Limited : (1998) 1 SCC 616, Cooperative Sugars (Chittur) Ltd. vs. State of T. N. : 1993 (Supp) 4 SCC 42 and Bimal Chandra Banerjee vs. State of Madhya Pradesh Etc. : (1970) 2 SCC 467. 36. It is then contended that the impugned letter dated 25-05-2015 issued by the Respondent No.3 and letter dated 18-05-2015 issued by the Respondent No.2 are without jurisdiction and does not stand legal scrutiny. The Petitioners have been required as per the letter to pay service tax under Sub-Rule (7C) of Rule 6 of the Service Tax Rules, 1994 which only provides an optional composition scheme for payment of service tax and does not create a charge of serv....
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....not be levied under the Finance Act, 1994 as amended by the Finance Act, 2015. 38. It is then submitted that the interpretation adopted by the Respondents on the proposed amendments in the Finance Act, 1994 by the amendment Act 2015, vide their Circular dated 19-05- 2015 is erroneous in stating that the objective of the amendments in the Finance Act, 1994 was to make it explicitly clear that while lottery per se is not subject to service tax, the services by lottery distributor or selling agents in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind in any other manner in relation to lottery, will be taxable. The decision in Future Gaming Case 2014 (supra) was referred to on this wherein similar TRU Circular dated 26-07-2012 fell for consideration by this Court and it had been held that the interpretation of the Circular was erroneous. It is alleged that the collection of service tax on the activity undertaken by the Petitioners is arbitrary, illegal and is violative of Articles 19(1)(g) and 300A of the Constitution of India. 39. The counter-affidavit filed on behalf of the Respondents No.1 to 3, appear to be larg....
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....while lottery ticket is an actionable claim and is thus goods, lottery on the other hand is a game and thus a service and, therefore, has been included in the negative list. It is stated that the department was not charging service tax on lottery but on the supporting services of lottery, i.e., promoting and marketing of lottery which are provided by the supporting service providers. Reference in this regard has been made to Section 66F(1) of Finance Act, 1994, which provides that "unless otherwise, specified, reference to a service shall not include reference to a service for providing main service". 41. The Respondents further state that the Government of Sikkim is a seller of lottery tickets and the Petitioners its buyers providing marketing and promoting facilities for sale of lotteries. It is clarified that the State of Sikkim is a seller of lottery tickets and the buyer is the individual who buys the lottery tickets and it is not the Petitioners who are the buyers as claimed by them. Therefore, the function of the Petitioners are that of middlemen and as such their services are chargeable to service tax and would bring them within the definition of 'service' under ....
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....re, justifies issuance of the impugned letters dated 18-05-2015 and 12-06-2015 under the statutory provisions under D.O.F. Circular No.334/5/2015-TRU dated 19-05-2015. 44. It is asserted that the Petitioners apart from referring to Notification No.25/2012 dated 20-06-2015, have not challenged Notification No.6/ 2015-ST dated 01-03-2015 which came into effect from 01-04-2015 by which Item No.(c), (d), (e) have been omitted and the exemption withdrawn with a view to broaden the tax base. By issuing letters dated 18-05-2015 and 12- 06-2015 being Annexure P3 (collectively) in WP(C) No.40 of 2015, the Respondents have acted as per the due process of law for implementation, administration and enforcement of service tax in respect of service provided or agreed to be provided by selling or marketing agent of lottery tickets to a lottery distributor or selling agent, requesting the Petitioners to obey and comply with the law. That the judgments in Future Gaming Case 2015 (supra) and Future Gaming Case 2014 (supra) are matters which are sub judice in the Apex Court in SLP (C) No.11842-11843 of 2013 and SLP(C) No.33760-33761 of 2013 (CC No.19095 of 2013 and 19096 of 2013). It is reiterated....
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.... the Petitioners in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery in any kind or in any other manner. 47. It is submitted that even in the case of the second Writ Petition in the matter of M/s. Summit Online Trade Solution Private Limited, the Petitioner is a marketing agent as per agreement dated 09-11-2012 entered into between the Government of Sikkim and the Petitioner in WP(C) No.40 of 2015 under the Lotteries (Regulation) Act, 1998 and the Lotteries (Regulation) Rules, 2010. It is asserted that the Parliament has power to make laws with respect to any matter for any part of the territory of India notwithstanding that the matter is one enumerated in the State List. Since levy of service tax is not a subject-matter covered under List II but under the residuary power of the Union Parliament under Entry 97 of List I, the Union Parliament is competent to pass laws relating to service tax in respect of services rendered by the Petitioners which amounts to service provided or agreed to be provided by a selling or marketing agent of lottery tickets to a lottery distributor engaged by the Government of Sikkim under agreements ....
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....t. The Petitioners are rather buying and selling the tickets as their own commercial venture which would be evident from the various contract clauses in the Agreement entered between the State Government and the Petitioners. The promotion of lottery tickets by way of advertisement is purely at the option and the discretion of the Petitioners devoid of any compulsion placed upon them by the State Government. The Petitioners also do not nor can they claim any reimbursement of the expenditure borne by them towards advertisement from the State Government. 50. Referring to the amendment of 2015, it was submitted that what is ousted from an actionable claim is the activity carried out by a lottery distributor or selling agent in relation to promotion, marketing, etc., or facilitating in organising lottery of any kind, in any other manner. It is urged that the Petitioners would not fall under this Clause as it is not doing any activity for consideration in relation to promotion, marketing, organising or selling of lottery or for facilitating in organising lottery of any kind. All that the Petitioners are doing is that they are buying and selling the lottery tickets and, therefore, no s....
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.... (supra) the income tax authorities sought to enforce tax deduction at source terming the discount on the face value of the tickets as commission which proposition was turned by the Kerala High Court holding that the assumption of realising discount by the buyer of the lottery tickets was totally unfounded. Mr. Rao drew the attention of this Court to the various portions of the judgment in Future Gaming Case 2015 (supra) to which re-empahsise point more particularly, the following:- "(ah) The facts of the present case are clearly distinguishable as noticed in the earlier part of the discussion. We have opined that the State Government is not paying any consideration to the petitioners nor the petitioners are rendering any service to the State. To the contrary the petitioners are paying minimum guaranteed amount for the purchase of entire lot of lotteries at the discounted price of 70 paise against the MRP of Re.1/- to the State. The nature of discount has already been discussed in detail. (ai) It has been held by the Hon'ble Supreme Court in All India Federation of Tax Practitioners (Supra) that the service is an activity and service tax is in the nature of VA....
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....te organized lottery by the petitioners through its various stockists, agents etc. can be construed to be the service rendered to the State Government so as to enable the Central Government to impose service tax on any component or element of the transaction between the State and the petitioners." 53. It was further submitted that this Court by referring to Entries 34 and 62 of List II to Seventh Schedule of the Constitution of India and Entries 40 and 97 of List I of the said Schedule and after considering a conspectus of decisions of the Hon'ble Supreme Court including R.M.D. Chamarbaugwala (supra), held that betting and gambling envisaged under Entry 62 is itself an activity, though the lottery ticket is a tangible thing which carries with it right to participate in the game of chance. Thus, all the activities right from the publishing of the lottery tickets till participation in the game of chance, declaration of draw and even distribution of prizes to the winner fall within the purview of the expression "betting and gambling". Thus, power to levy tax on organisation, promotion and marketing of lottery ticket being an Act of betting and gambling falls within the exclusiv....
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....ain as "betting and gambling or lottery" and does not metamorphose into an activity for consideration "in relation to promotion, marketing, organising, selling of lottery or facilitating in organizing lottery of any kind, in any other manner" as provided in Explanation 2 to Clause (44) of Section 65B as introduced by the Finance Act, 2015. 56. Referring to the decision in Delhi Cloth & General Mills Co. Ltd. (supra), it was submitted that by introduction of Explanation in the Finance Act, 2015, the Respondents cannot get over the judgments of this Court in Future Gaming Case 2015 (supra) and Future Gaming Case 2014 (supra). It was urged that by way of Explanation one cannot deem a law but only facts, and then only inferences of law may be drawn from such facts. Thus, by introduction of the Explanation in 2015 one cannot deem what is legally an actionable claim not to be an actionable claim. Likewise one cannot deem what is betting and gambling and lottery to be other than betting and gambling or lottery. It is submitted that in view of B. R. Enterprises (supra) where lottery is nothing but betting and gambling, it would not be permissible to hold otherwise which is what has been....
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....f the agent as the definition of 'service' excludes a transaction in actionable claim. The levy of service tax on the agent of the distributor is not attracted since such a person is only indulging in buying and selling the lottery tickets and, therefore, would not be covered under Explanation 2 introduced to the definition of 'service' under Clause (44) of Section 65B of the Finance Act, 1994, as amended by the Finance Act, 2015. This is because under Explanation 2 it is only "any activity carried out for a consideration in relation to, or facilitation of, a transaction in money or actionable claim would not be covered as transaction in money or actionable claim". 59. As already noted, the submission of the Learned Counsel is that the agent to the Petitioners/Distributors is only buying and selling the lottery tickets are had not carrying out any activity for consideration in relation to the transaction in actionable claim or facilitation thereof. The Learned Counsel would submit further that the agent to the Petitioners/Distributors would also not be covered by Clause (a) in Explanation 2 as that pertains only to a lottery distributor. In Section 66D providing ....
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....f Section 65B of the Finance Act, 2015. (iv) It is further submitted that Section 66D which sets out the negative list is a generic provision the core of which cannot be expanded by an Explanation. The dominant object of Section 66D is to exclude lottery which could not have been set at naught by inserting an Explanation to the contrary. Reference in this regard to S. Sundaram Pillai, etc. vs. V. R. Pattabiraman : (1985) 1 SCC 591 and Swedish Match AB and Another vs. Security and Exchange Board of India and Another : (2004) 11 SCC 641. (v) The other aspect is that the activities of the Petitioner is being sought to be excluded from the negative list firstly, by inserting an Explanation to Section 66D which in turn relies upon the Explanation 2 added to Clause (44) of Section 65B. 61. Mr. D. K. Singh, Learned Counsel, appearing on behalf of the Respondents No.1 to 3, submitted that the Respondents by issuing the impugned letters had only asked the Petitioners to obey and comply with the law to pay service tax on the activities that they were carrying out, which, as per the Respondents, amounted to rendering of service. It is submitted that the power to levy service tax is v....
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....n, as indeed it must, in Section 32 of the Bombay Lotteries (Control and Tax) and Prize Competitions (Tax) Act, 1958. It is an Act to control and tax lotteries and to tax prize competitions in the State of Maharashtra. Section 32(b) expressly provides that nothing in the Act shall apply to "a lottery organised by the Central Government or a State Government". This, as we said, is but a recognition of the prevailing situation under the Constitution. The Constitutional position cannot be altered by an act of the State legislature." 63. It was his contention that since the subject "lotteries organised by the Government of India or the Government of a State" has been made a subject within the exclusive legislative competence of Parliament, no Legislative of a State can make a law touching that subject in view of Articles 246(1) and (3) of the Constitution of India. Reference in this regard was also made to Lachmandas Balachand, Paradise Lottery Centre and Others vs. The State of Andhra Pradesh and Others : AIR 1975 AP 50, the relevant portions of which reads as under:- "4. Now Entry 40 in List I is "Lotteries organised by the Government of India or the Government of a State....
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....92) 2 SCC 643. 65. Referring to and relying upon R. S. Joshi vs. Ajit Mills Ltd. and Another : AIR 1977 SCC 2279, it was submitted that when examining a Legislation from the angle of vires, the Court has to be resilient and not rigid, forward looking and not static and, be liberal and not verbal. It is a settled principle of law enunciated in V. M. Syed Mohammad & Co. and Another vs. State of Andhra : AIR 1954 SC 314 that if there is any manner of doubt as to the constitutionality of a law, the Court generally tend to resolve it in favour of its validity. The Learned Counsel would remind this Court by relying upon State of Bihar and Others etc. etc. vs. Bihar Distillery Ltd. etc. etc. : AIR 1997 SC 1511 that an Act of Parliament represents the will of the people and cannot be lightly declared as unconstitutional. These are the submissions which can be considered as having some substance in the argument placed by Mr. D. K. Singh, Learned Counsel on behalf of the Respondents No.1 to 3. 66. Upon examining the pleadings, the documents available on the records and hearing the rival contentions of the Learned Counsel for the parties, one cannot but get a sense of deja vu as one ....
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....le claim" is defined under Section 3 of the Transfer of Property Act, 1882; (iv) That actionable claim is left out from the purview of service tax in the negative list by virtue of Section 66D of the Finance Act, 1994, as amended by the Finance Act, 2010 and the Finance Act, 2012; (v) That lotteries fall within the meaning of "betting and gambling" as provided in Entry 34 of List II following the jurisdiction in R.M.D. Chamarbaugwala Case (supra) and, therefore, by virtue of Entry 62, "taxes on betting and gambling" lies in the exclusive domain of the State Legislature; (vi) That buying and selling of lottery tickets is nothing but actionable claim following the decision in Sunrise Associates Case (supra); (vii) That in the garb of a Subordinate Legislation, i.e., Sub-Rule (7C) of Rule 6 of the Service Tax Rules, 1994, it is not permissible to charge service tax as it would be beyond the scope of the parent Legislation. All the more so as Sub- Rule (7C) of Rule 6 only provides an optional composition scheme for payment of service tax and that unless there is levy of service tax under the statutory provisions, the alternate scheme cannot be extend....
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....le 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 Constitution of India lacks legislative competence to levy any tax in respect to the activity falling under entries 34 and 62 of List II." 72. In Future Gaming Case 2015 (supra) this Court after examining the entire scheme of the Constitution and the various decisions of the Hon'ble Supreme Court concluded as follows:- "(i) In the backdrop of discussion on Ground (A) we have no hesitation to conclude that the activities of the lottery distributors i.e. the petitioners herein do not constitute a service and thus beyond the purview of "taxable service" as statutorily defined under clause (zzzzn) of subsection 105 of Section 65 of the Finance Act, 1994 as amended vide Finance Act, 2010. (ii) The activity of promotion, marketing, organizing or in any other manner assisting in organising game of chance inc....
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....onstitutes merely,- ................................................................... (iii) a transaction in money or actionable claim; (51) "taxable service" means any service on which service tax is leviable under section 66B; Charge of service tax on and after Finance Act, 2012. 66B. There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent on the value of all services, another than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed. Negative list of services. 66D. The negative list shall comprise of the following services, namely:- ..................................................................... (i) betting, gambling or lottery; ............................................................" [emphasis supplied] 75. It may be noted that the challenge to these provisions were exactly the same as those in the Future Gaming Case 2015 (supra) reproduced under paragraph 71 (A) and (B) above. The core quest....
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....f this Court in WP(C) No.19 of 2007 in the matter of M/s. Martin Lottery Agencies Limited (supra) has been referred to and notice taken of the conclusion arrived at therein by relying upon Sunrise Associates (supra) that lottery ticket is an 'actionable claim' and, therefore, outside the purview of 'service' and that the Appeal filed by the Union of India being Civil Appeal No.3239 of 2009, was dismissed and the decision of this Court was not interfered with. 47. We have also noted that for arriving at a conclusion as to whether the Petitioner having been appointed as a distributor can constitute an agency, we have accepted the argument that distributor as the purchaser acts as a wholesaler on payment of total sale price, he is a buyer and not an agent. We had also accepted the proposition founded on Pioneer Tools and Appliances (P) Ltd. (supra) that in the light of the terms of the agreement the State Government had no concern with the further sale of the ticket by the Petitioner except for it to comply with the regulatory provisions contained in the Lotteries (Regulation) Act, 1988, and the Rules framed thereunder and that the State Government was not con....
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....ion of sale on purchase and, that the activity of the Petitioner of sale of the State Lottery through its various stockists, agents, etc., cannot be construed to be a service rendered to the State Government to fall within the purview of the service tax in the absence of any element of service in such activity. 49. In Martin Lottery Agencies (supra), following the legal proposition that the activity of the lottery is res extra commercium laid down in R.M.D. Chamarbaugwala (supra) and B. R. Enterprises (supra) as being gambling, doubt was expressed "as to how service element of the entire transaction is to be ascertained". The decision in P. Muraleedharan (supra) relied upon on behalf of Respondents No.1 to 3 no doubt rejected the contention that the Petitioner were not rendering any service in relation to marketing of lottery in the portion of the judgment extracted earlier. However, we find this in conflict with an earlier decision dated 07-04-2004 in M. S. Hameed (supra), also of a Division Bench of that very Court, the relevant portion of which is reproduced below for convenience:- "Whether tax can be deducted or collected at source from the persons who receive....
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....of income tax at source at the rate of 10%, it would be equally germane for consideration in the present case also in so far as the finding that the Petitioners are not agents and that the Government is not responsible for paying commission or remuneration. SLP (C) No.10985 of 2004 in M. S. Hameed's case was dismissed and, therefore, by implication the finding that the Petitioner is not an agent of the Government of Sikkim in the sale, promotion, etc., of its lottery tickets still holds the field. In any case, the finding of M. S. Hameed's case is in consonance with the decision of this Court in WP(C) No.36 of 2011 wherein apart from holding that the Petitioner was not an agent of the Government in relation to the sale of lottery, it has categorically been decided that there is no element of service in such activity 51. Following from the above, we are of the view that the basis upon which the Respondents No.1 to 3 are seeking to impose service tax upon the Petitioner under the Amendment Act of 2012 to the Finance Act, 1994, on the erroneous premises that the Petitioner is a service provider engaged in assisting in arranging sale of lottery ticket for the Governmen....
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....shing the impugned letters in that case issued by the Respondents. 79. In our view, the primary finding in both the cases is that the activities of the lottery distributors, i.e., the Petitioners, did not constitute a service and thus beyond the purview of taxable service as the activity of the Petitioners comprising of promotion, organising, reselling or in any other manner assisting or arranging the lottery tickets of the State, did not establish the relationship of principal and agent but rather that of a buyer and a seller on principal to principal basis in view of the nature of the transaction being bulk purchase of the lottery tickets by the Petitioners from the State Government on full payment of price as a natural business transaction and, other related features and there being no privity of contract between the State Government and the Stockists, agents, resellers, etc., under the Petitioners. The question that would arise in the present case is as to whether the primary finding of this Court in the two decisions would also apply in the facts of the present case having regard to the amendment to the Finance Act, 1994 brought about by the Finance Act, 2015. 80. This b....
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....lue shall,- (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; ................................................................... Explanation.-For the purposes of this section,- (a) "consideration" includes- ................................................................... (iii) any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such ticket." 81. On a close examination of the provisions reproduced above, it becomes quite evident that the object of the amendment was to get over our finding in the Future Gaming Case 2015 (supra) and Future Gaming Case 2014 (supra) which also would be evident from the impugned letter bearing No.V(3)7/ST/FGSIPvtLtd/GTK/ 2009/344 dated 25-05-2015 which is reproduced below:- "................
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....y of any kind in any other manner. Similarly, in Section 66D which provide for the negative list of service another Explanation is found to have been inserted by which the activity specified in Explanation 2 to Clause (44) of Section 65B has been specifically excluded. On a bare reading the most crucial provision, in our view, appears to be Clause (44) of Section 65B of the Finance Act, 1994, which defines 'service' that would require examination in order to ascertain as to whether the activity of the Petitioners would fall within the meaning of 'service' and, therefore, liable to levy of service tax under the Finance Act, 1994. 'Service' has been defined under Clause (44) as meaning any activity carried out by a person for another for consideration. Thus, the principal requirement that are embedded in these provisions clearly appears to be (a) that the activity should be carried out by a person for another and (b) that such activity should be for a consideration. 83. In Future Gaming Case 2015 (supra) and Future Gaming Case 2014 (supra) it has been held most unequivocally, inter alia, that the activity of the Petitioners comprising of promotion, organisi....
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....................................... 2. APPOINTMENT OF SOLE PURCHASER/ DISTRIBUTOR/PROMOTER Notwithstanding anything contained hereinafter, the Government, the Sole Purchaser/Distributor, Promoter and their distribution network shall all be jointly and severally liable to ensure that all provisions of the Act and Rules are strictly followed: 2.1 The Government based on the report and recommendations of the Tender Selection Committee hereby appoints M/s Future Gaming and Hotel Services Private Limited as Sole Purchaser/Distributor, exclusively for paper lottery tickets to market 8 (eight) weekly lottery schemes per day promoted by the State of Sikkim as as permitted by the Government under the Lotteries (Regulation) Act, 1998 and Lotteries (Regulations) Rules, 2010 for a period of 5 (five) years w.e.f. 01-02-2015 to 31-01-2020 (both days inclusive). 2.2 The appointment of the Sole Purchaser/Distributor is not transferable. 2.3 The Sole Purchaser/Distributor on his own terms and at his own risk and responsibility shall be entitled to appoint Sub/Area Distributor/Promoter, Sub/Area Stockists, sellers in the discharge of any obligations hereu....
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....d in the recital that the Petitioner "has agreed to be appointed as the sole Purchaser/Distributor to market and sell tickets of lottery schemes ..........................." would reveal that the Petitioner is not an agent of the Government of Sikkim who is carrying on the activity of marketing or selling of lottery on a consideration of promotion of a commission or the like. Thus, we are inclined to agree with the submission of Mr. Rao that the interpretation of TRU Circular dated 19-05-2015 as reproduced earlier is clearly erroneous as the department has failed to take note of the definition of 'service' provided under Clause (44) of Section 65B alluded to earlier. 86. Thus, as we find no change in the circumstance by introduction of the new provisions by the Amendment Act of 2015 from that which existed earlier in Future Gaming Case 2015 (supra) and Future Gaming Case 2014 (supra), we have no hesitation to hold that the finding of this Court in Future Gaming Case 2014 (supra) still continue to hold good. The activity carried out by the Petitioners in relation to promotion of marketing, organising, selling of lottery or facilitating in organising lottery of any kind in....
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....sions of this Court in the Future Gaming Case 2015 (supra) and Future Gaming Case 2014 (supra) which we have alluded to in detail. We agree with Mr. Rao that it is trite that when a Legislature sets out to validate a tax declared by a Court to be illegally collected under an ineffective or an invalid law, the cause for ineffectiveness or invalidity must be removed before the validation can be said to take place effectively. We may in this regard, refer to the decision of the Hon'ble Supreme Court while dealing with a similar circumstance in the case of Delhi Cloth and General Mill (supra) referred to on behalf of the Petitioner. 90. We are also in agreement with Mr. Dutta that the main object of Section 66D is to exclude actionable claim which includes lottery. This obviously is being said to be set at naught by Explanations. 91. It is a settled position of law that an Explanation cannot enlarge the scope of a provision in Hardev Motor Transport (supra), it has been observed as under:- "31. The role of an Explanation of a statute is well known. By inserting an Explanation in the Schedule of the Act, the main provisions of the Act cannot be defeated. By reason of ....
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.... Petitioners/Distributors in the first tier who purchase the lottery tickets in bulk as goods for price from the State Government, the second tier comprising of the selling and marketing agents also purchase from the Petitioners/Distributors lottery tickets in bulk as goods on payment of price severing all other relations. There is no privity of contract between the Petitioners/ Distributors and the sellers and buyers down the line after the second tier. Thus, the levy of reverse service tax vide Notification No.30/2012-ST dated 20-06-2012 as amended by Notification No.7/2015-ST dated 01-03- 2015 is clearly unsustainable and liable to struck down. 93. For these reasons, we are of the considered opinion that the other contention raised by Mr. Rao would be quite redundant and, therefore, not necessary to be dealt with. 94. Insofar as the submission of Mr. D. K. Singh, Learned Counsel for the Respondents No.1 to 3 and the decision cited by him appear to be purely academic having only a remote connection with the matter in lis and, therefore, do not deem it necessary to deal with those and, therefore reject them as irrelevant. 95. For the reasons aforesaid, we hold as follows:....