2025-VIL-07-SC-ST
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SERVICE TAX Supreme Court Cases

Service Tax – Levy of Service Tax on the sale/distribution of lottery tickets, Legislative Competence – Respondent are engaged in sale/distribution of lottery tickets organized by the Government of Sikkim - Through various amendments to the Finance Act, 1994, the Government has attempted to impose service tax on the activities of the respondent-assessees, which they have challenged before the High Court - The High Court vide impugned order allowed the writ petitions and held that the amendments carried out by the Finance Act, 2016, are not capable of being implemented for imposition and levy of service tax on the services provided by the respondents-assessees - Whether the respondent-assessees are acting as agents of the Government of Sikkim in selling/distributing the lottery tickets, thereby rendering them liable to pay service tax under the Finance Act, 1994 – HELD - The relationship between the Government of Sikkim and the respondent-assessees is not one of principal-agent, but rather of principal-principal. The respondent-assessees purchase the lottery tickets from the Government at a discounted wholesale price and then sell them to retailers and customers at their own discretion and on their own account – The various clauses in the agreements between the parties indicate the respondent-assessees are acting as independent principals, bearing the risk and reward of the transactions and not as agents of the Government – Merely because the online agreement uses the expression “marketing agent”, it would not imply that respondent-assessee is an agent within the meaning of the expression under the provisions of the Contract Act dealing with agency - Further, the conduct of lotteries falls within the scope of "betting and gambling" under Entry 62 of List II of the Seventh Schedule of the Constitution, which is the exclusive domain of the State Legislature for the purpose of taxation. Therefore, the Parliament lacks the legislative competence to levy service tax on the activities of the respondent-assessees - There being no agency and no service rendered by the respondents-assessees herein as an agent to the Govt of Sikkim, service tax is not leviable on the transactions between the purchaser of the lottery tickets - the orders of the High Court is upheld and the appeals filed by the Union of India is dismissed - Actionable Claim, Negative List, Consideration Fact - Interpretation of various amendments made to the Finance Act, 1994, particularly the insertion of the "Negative List" under Section 66D and the definition of "consideration" under Section 67 - Whether the activities of the respondent-assessees in selling/distributing lottery tickets fall within the "Negative List" of services under Section 66D of the Finance Act, 1994, and whether the discounts or margins earned by them should be considered as "consideration" for the purposes of levying service tax – HELD - Although a lottery ticket is nothing but an actionable claim, the conduct of a lottery scheme is nothing but a betting and gambling activity. Therefore, it is only Entry 62 – List II which enables the imposition of tax by the State Government. The activity of betting and gambling which includes conducting of a lottery is regulated under Entry 34 –List II, with Entry 62 – List II being the taxation entry - The conduct of lotteries, which are considered games of chance and fall within the scope of "betting and gambling" under Entry 62 of List II, is not subject to service tax by the Parliament under its residuary powers - the amendments made to the Finance Act, 1994, including the insertion of the "Negative List" and the definition of "consideration," did not alter the substantive nature of the transactions between the Government of Sikkim and the respondent-assessees - the respondent-assessees are acting as independent principals in the sale of lottery tickets, and the discounts or margins earned by them are not in the nature of "consideration" for the provision of any service rather represent the profit from their business activities.
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