TaxTMI 
TaxTMI 
2017 (3) TMI 1417
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....Schedule of the Constitution of India; also 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 i....
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....line 449 (Sikkim). It is then contended that the Agreements entered into between 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 lot....
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....rried out by a lottery distributor or a selling agent on behalf of the State Government. 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....
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....person, for promotion, marketing, organizing or in any other manner assisting in organizing games of chance, including lottery, Bingo or Lotto in whatever form or by whatever name called, whether or not conducted through internet 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 t....
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....ty 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 (Negative list). "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." 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 Be....
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.... selling or facilitating in organizing lottery of any kind, in any manner, organized by such State in accordance with the provisions of the Lotteries (Regulation) Act, 1998 (17 of 1998); ......... (g) in clause (44), for Explanation 2, the following Explanation shall be substituted, namely: - 'Explanation 2. - For the purpose of this clause, the expression "transaction in money or actionable claim" shall 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,....
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....of 2015 and letters dated 18-05- 2015 and 12-06-2015 to the Petitioner-Company in WP(C) No. 40 of 2015 having been issued on an erroneous interpretation of Section 66D of the Finance Act, 1994, as amended by the Finance Act, 2015 requiring the Petitioners to pay tax under the Service Tax Rules, 1994, as amended, in the absence of specific provision in the Finance Act and that Sub-Rule (7C) of Rule 6 of the Service Tax Rules, 1994, only provides an optional composite scheme for payment of tax and, therefore, does not create a charge of service tax and is a Subordinate 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) defi....
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.... tax in the nature of excise duty does not cease to be one such merely because the stage of levy and collection has been as a matter of legislative policy shifted by actually providing for its levy and collection from the users of rubber, so long as the character of the duty as excise duty is not lost and the incidence of tax remained to be on the production or manufacture of goods. Likewise, once the legislature is found to possess the required legislative competence to enact the law imposing the tax, the limits of that competence cannot be judged further by the form or manner in which that power is exercised. In (Morris) Leventhal 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 s....
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.... though it may trench upon matters beyond its competence. Incidental encroachment does not invalidate such a statute on the grounds that it is beyond the competence of the legislature (Prafulla Kumar v. Bank of Commerce : AIR 1947 PC 60). Article 246(1) of the Constitution specifies that Parliament has exclusive powers to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule to the Constitution. As per Articles 246 (3), the State Government has exclusive powers to make laws with respect to matters enumerated in List II (State List). In respect of matters enumerated in List III (Concurrent List) both Parliament and the State 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 th....
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....60 of List II and Entries 92-C/97 of List I operate in different spheres." 24. In Karnataka Bank Ltd. vs. State of Andhra Pradesh and Others (2008) 2 SCC 254, wherein levy and realization of tax on the persons as defined under clause 2 (j) of the Andhra Pradesh Tax on Professions, Trades, Callings and Employments Act, 1987 was under consideration. The Supreme Court examined the legal position comprehensively and held that Article 265 of the Constitution prohibits the levy or collection of tax except by an authority of law which means only a valid law. 25. In M/s Hoechst Pharmaceuticals Ltd. and Others vs. State of Bihar and others (1983) 4 SCC 45, the Supreme Court examining 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 ....
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....ly flow from the power to regulate trade or commerce in, and the production, supply and distribution of essential commodities under Entry 33 of List III, although the liability to pay tax may be a matter incidental to the Centre"s power of price control." 26. In the instant petitions, we are concerned with the amendments made in the Finance Act, 1994 by the Finance Act, 2016. The previous Division Benches in the cases (supra) have come to a conclusion that no service tax is imposable and leviable on lottery, but we are dealing with the service tax on related activities in distribution and sale of lottery tickets. 27. On gleaning through various amendments made from 2010 onwards, it is evident 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 clai....
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....d with the power and competence under Article 268A read with Entry 97, List I (Union List) to impose and levy service tax on other related activities, as aforestated. The impugned amendment brought in Finance Act, 2016 is not unconstitutional. 32. It is apposite to state that the Division Benches of this Court in W.P.(C) Nos. 36 & 23 of 2011 (Future Gaming Solutions Pvt. Ltd. Vs. Union of India); W.P.(C) No. 32 of 2012 (Future Gaming Solutions India Pvt. Ltd. Vs. Union of India) and W.P.(C) No. 39 of 2015 (Future Gaming & Hotel Services Pvt. Ltd. Vs. Union of India) have categorically held that the Union-Parliament lacks competence to impose service tax and the concerned amendments were held as ultra vires 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 Ben....
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.... three learned Judges is so very incorrect that in no circumstances can it be followed, the proper course for it to adopt is to refer the matter before it to a Bench of three learned Judges setting out, as has been done here, the reasons why it could not agree with the earlier judgment. If, then, the Bench of three learned Judges also comes to the conclusion that the earlier judgment of a Bench of three learned Judges is incorrect, reference to a Bench of five learned Judges is justified." In the aforestated background, we are hard put to take a contrary view. 36. There is another aspect that the Union of India is competent to impose and levy service tax on the services rendered by a person, however, for want of proper mechanism service 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 al....
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....(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. 10 Lakh (or part of Rs. 10 Lakh) of aggregate face value of lottery tickets printed by the organizing State for a draw. If the lottery or lottery scheme is one where the guaranteed prize payout is more than 80%. 2. Rs.11000/- on every Rs. 10 Lakh (or part of Rs. 10 Lakh) of aggregate face value of lottery tickets printed by the organizing State for a draw. If the lottery or lottery scheme is one where the guaranteed prize payout is less than 80%. Provided that in 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 o....
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....e 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 "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 etc. To the contrary, the petitioner is paying the minimum guaranteed sum towards the full sale consideration to the Government and thus the entire claim of the respondents that the petitioner is providing taxable service is belied by its own circular and understanding of the nature of the petitioner"s activity." 39. Again in Future Gaming Solutions India Pvt. Ltd.3 it is found that there is no mechanism to ascertain and compute the service rendered by a person for promoting, marketing, selling or facilitating in organizing lottery of any kind, in any manner, organized by such State in accordance with the provisions of the Lo....