TaxTMI 
TaxTMI 
2017 (3) TMI 1417
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....lso seeking a declaration that the transactions in buying and selling lottery tickets are not liable to Service tax under the provisions of the Finance Act, 1994 as amended by the Finance Act, 2016 and further seeking for quashing of Notifications No.18/2016-ST dated 01.03.2016, these Writ Petitions are filed by the petitioners, with prayer of incidental and consequential relief. 2. Both the Writ Petitions raise the one and the same questions of law arising from the identical cause of action and, as such, are being considered and disposed of by this common Judgment. 3. The petitioners" firms, incorporated under the Companies Act, 1956, are engaged in business of buying and selling of lottery tickets organized by the Government of Sikkim. An Agreement between the petitioners and the Government of Sikkim was arrived at on 06.06.2016 and 09.11.2012 respectively, enabling the petitioners" firms to purchase lottery tickets in bulk from the Government and re-sell the same to the public at large, through authorized agents, stockists, resellers etc. The validity of the said Agreements is five years. Certain amendments were made time and again in the Finance Act, 1994, which came to be ch....
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....ween the petitioners and the State Government are valid Agreements in public policy, thus, is not violative and void merely because the consideration is inadequate in the teeth of Section 23 (2) (sic. Sec. 25 (2)) of the Indian Contract Act, 1872, as pleaded by the respondents, as the Agreements were executed in compliance and consonance with the Lotteries Regulation Act, Rules and Model Agreement. The invoices were raised by the State Government, which clearly made procurement of lottery tickets by the petitioners as outright complete sale. Learned Counsel would further contend that the amendment made by the Parliament for imposition of service tax is ultra vires as the lottery falls within the definition of "betting and gambling" and, as such, the same falls in the State List of the Seventh Schedule, thus, seek a declaration that the amended provisions are ultra vires the Constitution and consequential notification be held as null and void and be quashed. 6. In oppugnation, Mr. B. K. Gupta, learned Counsel appearing for the respondents 1, 2 and 3, would submit that the service tax is not imposed on lottery but on the services rendered by the distributors or selling agents for ma....
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....overnment. Mr. Gupta would further urge that under provisions of Section 268A, which has been inserted later on, the Parliament is competent to impose service tax. Learned Counsel would also submit that the conduct of lottery itself is known as "service" in the international context and classifiable under the Heading No.96920 of the UN-CPC classification. 7. We have heard the learned counsel appearing for the parties, perused the pleadings and examined the documents appended thereto. 8. Article 268A of the Constitution of India, providing for levy of service tax by Union and collected and appropriated by the Union and the States, was inserted by the Constitution (Eighty-eight Amendment) Act, 2003. However, the same was later on omitted by the Constitution (One Hundred and First Amendment) Act, 2016. Accordingly, Entry 92C in List I - Union List of the Seventh Schedule of the Constitution for legislation to levy service tax was inserted by the same Eighty-eighth Amendment. However, the same was never notified. In the meantime, along with the omission of Article 268A, Entry 92C was also omitted by the Constitution (One Hundred and First Amendment) Act, 2016. 9. Finance Act, 2012 p....
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....t or other electronic networks;" 11. A Division Bench of this Court in Future Gaming Solutions 2015 (37) STR 65 (Sikkim), considering all aspects of the matter, came to the following conclusion: - "(XXI) From the discussion and consideration of judgments noticed hereinabove, it clearly emerges that where the transaction is purely that of sale and purchase and does not involve any component of service in it, which cannot be clearly segregated and discernible, no Service Tax is payable. However, where two components in a transaction, i.e. "sale" and "service", are capable of compartmentalization so as to segregate the element of service from the transaction of sale, Service Tax may be leviable on the service component in a transaction. xxxxx xxxxx (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 "taxable service". It is submitted that in the instant case, the Government does not pay any consideration in any form for the activities to be performed by the petitioner for promotion of the sale by advertisement et....
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...."betting, gambling or lottery" shall not include the activity specified in Explanation 2 to clause (44) of section 65B." 15. In pursuance thereafter, the Superintendent of Central Excise and Service Tax, Gangtok Range, Gangtok issued a letter bearing No. V(3)7/ST/FGSI Pvt. Ltd./GTK/2009/295 dated 06.07.2012 informing the petitioner that as per Notification No. 36/2012-ST dated 20.06.2012 read with Rule 6(7C) of the Finance Act, 1994 (as amended) the petitioner was liable to pay service tax as per the prevailing provisions since they had been rendering service to the State Government in relation to promotion, marketing, organizing and assisting in organizing games of chance including lottery services. The said letter came to be assailed in W.P.(C) No. 32 of 2012 (Future Gaming Solutions India Pvt. Ltd. vs. UOI3) by the first petitioner. The Division Bench of this Court, referring to the earlier judgment in Future Gaming Solutions Pvt. Ltd. vs. UOI2, held as under:- "70. In view of the facts and circumstances and the discussions, our conclusions are as under: - (i) In the light of sub-section (1) to Section 65B read with sub- section (44) thereof lottery is excluded from the def....
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....all not include- ......... (ii) any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out - (a) by a lottery distributor or selling agent in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any other manner; ........." Amendment of section 66D. 107. In Section 66D of the 1994 Act, with effect from such date as the Central Government may by notification in the Official Gazette, appoint, - ......... (3) in clause (i), the following Explanation shall be inserted, namely:- Explanation - For the purpose of this clause, the expression "betting, gambling or lottery" shall not include the activity specified in Explanation 2 to clause (44) of section 65B;" Amendment of section 67. 109. In section 67 of the 1994 Act, in the Explanation, for clause (a), the following clause shall be substituted, namely: - (a) "consideration" includes - (i) any amount that is payable for the taxable services provided or be provided; ......... (iii) any amount retained by the lottery distributor or selling ....
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....bordinate piece of Legislation, hereby stands quashed. Resultantly, Circular under D.O.F. No. 334/5/2015-TRU dated 19-05-2015 referred to in the aforesaid letters in the two Writ Petitions also stand quashed; and (iv) The Respondents, their agents, servants, officers and representatives are restrained directly or indirectly, and in any manner whatsoever, from demanding any amounts by way of service tax or enforcing the provisions of the Finance Act, 1994 on the activity of the Petitioners in relation to lottery tickets." 18. The Finance Act, 1994 was again amended by the Finance Act, 2016, whereunder clause (44) defines "service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include the following activities : - (a) an activity which constitutes merely, - (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be sale within the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employe....
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....venthal v. David Jones Ltd. : AIR 1930 PC 129 the question arose as to the power of the legislature to impose "bridge tax", when the power to legislate was really in respect of "tax on land". It was held therein as follows: "The appellants" contention that though directly imposed by the legislature, the bridge tax is not a land tax, was supported by argument founded in particular on two manifest facts. The bridge tax does not extend to land generally throughout New South Wales, but to a limited area comprising the City of Sydney and certain specified shires, and the purpose of the tax is not that of providing the public revenue for the common purposes of the State but of providing funds for a particular scheme of betterment. No authority was vouched for the proposition that an impost laid by statute upon property within a defined area, or upon specified classes of property, or upon specified classes of persons, is not within the true significance of the term a tax. Nor so far as appears has it ever been successfully contended that revenue raised by statutory imposts for specific purposes is not taxation." (emphasis supplied)" 21. In T.N. Kalyana Mandapam Assn. vs. Union of India....
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....tate Governments have powers to make laws. The service tax is made by Parliament under the above residuary powers." 22. Again in Gujarat Ambuja Cements Ltd. and Another vs. Union of India and Another (2005) 4 SCC 214, the question of imposition of service tax on the customers or clients of goods transport operators and of forwarding and clearing agents came up for consideration. The Supreme Court held as under: "32. Since service tax is not a levy on passengers and goods but on the event of service in connection with the carriage of goods, it is not therefore possible to hold that the Act in pith and substance is within the States" exclusive power under Entry 56 of List II. What the Act ostensibly seeks to tax is what it, in substance, taxes. In the circumstances, the Act could not be termed to be a colourable piece of legislation. It is not the case of the petitioners that the Act is referable to any other entry apart from Entry 56 of List II. Therefore the negation of the petitioners" submission perforce leads to the conclusion that the Act falls within the residuary power of Parliament under Entry 97 of List I." 23. In All India Federation of Tax Practitioners and Others vs.....
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....ning the ambit and scope of Article 254 of the Constitution and observed as under: - "67. Article 254 of the Constitution makes provision first, as to what would happen in the case of conflict between a Central and State law with regard to the subjects enumerated in the Concurrent List, and secondly, for resolving such conflict. Article 254(1) enunciates the normal rule that in the event of a conflict between a Union and a State law in the concurrent field, the former prevails over the latter. Clause (1) lays down that if a State law relating to a concurrent subject is "repugnant" to a Union law relating to that subject, then, whether the Union law is prior or later in time, the Union law will prevail and the State law shall, to the extent of such repugnancy, be void. To the general rule laid down in cause (1), clause (2) engrafts an exception, viz., that if the President assents to a State law which has been reserved for his consideration, it will prevail notwithstanding its repugnancy to an earlier law of the Union, both laws dealing with a concurrent subject. In such a case, the Central Act, will give way to the State Act only to the extent of inconsistency between the two, an....
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....nt that the service tax was intended on promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any other manner. By the impugned amendment a cosmetic change has been made in the Amendment Act, 2010, as initially the words "any person or any other person" was used. In 2015, it was modified to the extent that any activity carried out, for a consideration, in relation to or for facilitation of, a transaction in money except an actionable claim excluding the activity carried out (a) by a lottery distributor or selling agent in relation to promotion, marketing, organizing, selling of lottery or facilitating in organizing lottery of any kind, in any other manner. The lottery distributor or selling agent is a person appointed or authorized by a State for the purpose of some activities. By the impugned amendment the words "a person appointed or authorized by a State for the purpose of ..............." were substituted by the words "by a lottery distributor or selling agent on behalf of the State Government, ............". The substitution does not make substantial changes and the intention remains the same in pith and substance. 28. In t....
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....res to the Constitution of India. Thus, question arises as to whether this Division Bench can take a contrary view when the judgments rendered by the Division Benches have attained finality on the issues therein and are pending consideration in appeals before the Supreme Court of India. 33. It is beneficial to refer to the observations made by the Supreme Court in this respect in Union of India & Anr. vs. Raghubir Singh (Dead) by LRs. Etc. (1989) 2 SCC 754, the Constitution Bench of the Supreme Court held as under: - "28. We are of opinion that a pronouncement of law by a Division Bench of this Court is binding on a Division Bench of the same or a smaller number of Judges, and in order that such decision be binding, it is not necessary that it should be a decision rendered by the Full Court or a Constitution Bench of the Court. We would, however, like to think that for the purpose of imparting certainty and endowing due authority decisions of this Court in the future should be rendered by Division Benches of at least three Judges unless, for compelling reasons, that is not conveniently possible." 34. Again in Pradip Chandra Parija and others vs. Pramod Chandra Patnaik and other....
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....ervice tax is not enforceable on respondents. This issue came up for consideration in National Mineral Development Corporation Ltd. vs. State of M.P. and Another (2004) 6 SCC 281, and the Supreme Court came to the conclusion that "when it is clear from the computation provision that it is meant to supplement the charging provision and is, on its own, a substantive provision in the sense that but for the computation provision the charging provision alone would not work. The computing provision cannot be treated as mere surplusage or of no significance; what necessarily flows therefrom shall also have to be given effect to". 37. In Union of India and others vs. Martin Lottery Agencies Limited (2009) 12 SCC 209, examining the judgment and order arising from this Court, wherein the question of imposition of service tax on lottery tickets was under consideration, the Supreme Court observed as under: - "22. Service tax purports to impose tax on services on two grounds (1) service provided to a consumer, and (2) service provided to a service provider. Service provided in respect of the matters envisaged under clause (19) of Section 65 of the Act must be construed strictly. Before a tax....
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....n case of online lottery, the aggregate face value of lottery tickets for the purpose of this sub-rule shall be taken as the aggregate value of tickets sold, and Service Tax shall be calculated in the manner specified in the said Table. Provided further that the distributor or selling agent shall exercise such option within a period of one month of the beginning of each financial year and such option shall not be withdrawn during the remaining part of the financial year. Provided also that the distributor or selling agent shall exercise such option for financial year 2010-11, within a period of one month of the publication of this sub-rule in the Official Gazette or, in the case of new service provider, within one month of providing of such service and such option shall not be withdrawn during the remaining part of that financial year." The petitioners" case falls in Sl. No. 2, the prize money being less than 80%. (XXXI) On a conjoint reading of Sections 66, 67 and Rule 7(C) it appears that the Service Tax payable by a service provider for promotion, marketing, organizing or in any manner assisting in organizing lottery is @12% or assessed in the manner indicated in the tab....