The greed and avarice of the human being have been geneses of the gambling and betting in the society and their presence may be noted worldwide without knowing geographical boundaries. In ancient times, the number of precedents in the epics are found to show the practice of gambling and betting in vogue despite considering the same as sin in the welfare state.
In the welfare state, it is imperative on the part of the Government to curb sin practices by taking deterrent stringent measures but unfortunately, the Governments are becoming more interested in revenue collection by way of imposing taxes which eventually has turned out to be a taxing proposition to the Government and taxpayers too.
Lottery in paper form and with the technology leverage, even now online in various forms, are organised manner of the gambling and betting and legally known as derivative of the actionable claim in the taxing statute. Taxing statute in last decade has been very eventful where Central Government appeared not to accede the judicial pronouncements and brought consecutive amendments back to back in the service tax provision on after almost every adverse ruling in the Supreme Court/High Court which necessitated to put the facts in the periodical brackets in a chronological manner to have a comprehensive study of these amendments and court decisions which ultimately seems to be ended with the rolling out GST provisions.
As the whole dispute has been around the constitutional provisions, so it is wise to first have a look upon the related entries in the Indian Constitution for the sake of comprehending the issues easily.
(12)” Goods” includes all materials, commodities and articles;
LIST I- UNION LIST
40. Lotteries organized by the Government of India or the Government of State.
97. Any other matter not enumerated in List II or List III including any tax not mentioned in either of those Lists.
LIST II- STATE LIST
34. Betting and gambling.
62.Taxes on luxuries including taxes on entertainment, amusements, betting and gambling [This entry has been amended by 101st Constitutional Amendment in the wake of GST implementation and after amendment, it is read as under <62. Taxes on entertainment and amusement to the extent levied and collected by a Panchayat or a Municipality or a Regional Councils or a District Councils>
As the need of putting facts in the periodic brackets has been discussed above, thereby in the coming para, the whole study may be read out in sequential manner;
The provisions of the Finance Act,1994 stood as under as on commencement of the financial year 2007-08;
(19) “business auxiliary service” means any service in relation to,
(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii) promotion or marketing of service provided by the client; or
(iii) any customer care service provided on behalf of the client; or
(iv) procurement of goods or services, which are inputs for the client; or
Explanation. — For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “inputs” means all goods or services intended for use by the client;
(v)production or processing of goods for, or on behalf of, the client;]
(vi)provision of service on behalf of the client; or
(vii)a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision,
and includes services as a commission agent,
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;
In the above position of law at the relevant time, there was no explicit provision to levy service tax on lottery, betting and gambling, thereby as facts gathered from the Sikkim High Court decision in the matter Martin Lottery Agencies Ltd case law, the spat of litigation started when a letter dated 30.04.2007 was written by the Superintendent of Central Excise, Gangtok Range, Gangtok to the M/s. Martin Lottery Agencies Ltd by directing them to pay service tax on the sale of lottery tickets by resorting the Chapter V of the Finance Act, 1994 and Chapter VA of the Finance Act, 2003 provisions that contemplating service tax under the umbrella of Business Auxiliary Service and by placing reliance upon section 4(C) of the Lotteries(Regulation)Act,1998. Here at this stage, it would be helpful to look upon the relevant provision of the Act,1998 which guided the Superintendent of Central Excise to write the said letter;
3. Prohibition of lotteries—Save as otherwise provided in section 4, no State Government shall organise, conduct or promote any lottery.
4. Conditions subject to which lotteries may be organised, etc.—A State Government may organise, conduct or promote a lottery, subject to the following conditions, namely:—
(c) the State Government shall sell the tickets either itself or through distributors or selling agents;
The Noticee, invoked writ jurisdiction of the Sikkim High Court against the Central Excise department letter dated 30.04.2007 to nip the whole process in the bud and prayed for an interim order staying all further proceedings.
The contention of the Petitioner in the writ petition was that he has been purchasing the lottery tickets in bulk having face value Rs 100/- each on a reduced/discounted price of Rs. 70/- purely based on a principal-to-principal basis. As such, once the purchase of tickets is complete and the tickets become the property of the Petitioner fully and in their entirety, no question arises of any promotion or marketing of any goods produced or provided by the State Government still less of marketing any goods belonging to the State Government. Accordingly, the root of the service tax incidence, which is the said sub-section 19 disappears and service tax cannot be levied because no service could be provided by anybody who is dealing with goods that are fully owned by and fully belong to that person itself.
Per contra, the Central Excise department’s impugned letter adopted the line of reasoning because of section 3 and 4(c) of the Lotteries (Regulation) Act, 1998 that the sale of lottery tickets being prohibited except by the Government itself or through distributors or selling agents, the sale of such tickets by the State Government to the writ petitioner must be on the footing that the writ petitioner is a distributor or a selling agent of the State Government, since otherwise, it would entail a breach of the law both on the part of the State Government and on the part of the purchasing writ petitioner.
In the above given rivalry arguments, the number of questions arose for consideration and out of these questions, the worth noting, which eventually lead to the conclusion, whether the purchase of lottery tickets on the reduced/discounted price from the State Government is meant for marketing and whether the marketing is the true and core business activity of the writ petitioner. Answering these questions, the hon’ble court observed that the business viability of the writ petitioner dependents only on the middleman succeeding in getting a market for the original goods, and whether the margin of 30% sufficient to cover this type of business venture then it appears that the essence of the writ petitioner’s business venture is that of a middleman, and if it is a middleman’s venture, then the activity, properly so called, cannot but be promotion or marketing.
The Hon’ble High Court with the above observations in its order dated 13.08.2007, as reported Martin Lottery Agencies Ltd v/s UOI[2007(8)STR 562(Sikkim)], though declined from giving any interim relief but in final disposal, examined the short question whether lottery tickets are goods or not and in this regard relied upon the authority of the Constitution Bench of the Supreme Court in the matter of Sunrise Associates case v/s Govt of NCT of Delhi & Ors. [2006-TIOL-40-SC-CT-LB] holding, the lottery tickets as to be actionable claims. The hon’ble court in its brief order concluded that if the lottery tickets are not goods in the Sale of Goods Act, the petitioners cannot be said to be rendering any service in relation to the promotion of their client’s goods, or marketing of their client’s goods, or sale of their client’s goods. In such a manner, the Central Excise department’s intention to levy service tax on lottery tickets was thrashed at this stage and hon’ble high court judgment has been reported Martin Lottery Agencies Ltd v/s UOI[2007(8) STR 561(Sikkim)].
The above high court judgment prompted the Central Government for double pronged action, first, the high court impugned judgment was challenged before the Supreme Court, and secondly in next year budgetary changes, the following explanation was added to section 65(19)(ii) vide Finance Act,2008 in furtherance to its intent to bring lottery distributers/selling dealers in the tax net.
Explanation. — For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “service in relation to promotion or marketing of service provided by the client” includes any service provided in relation to promotion or marketing of games of chance, organised, conducted or promoted by the client, in whatever form or by whatever name called, whether or not conducted online, including lottery, lotto, bingo;’;
The insertion of the above explanation inculcated the concern amongst the stakeholders in so much as retrospective applicability. Therefore, such above stated insertion was brought to the notice of the Supreme Court amidst the ongoing proceedings against the high court decision.
During the proceedings in the Supreme Court, the Additional Solicitor General very relevantly pointed out that the High Court committed a serious error in passing the impugned judgment insofar as it failed to take into consideration that the Central Excise notice had been issued in terms of sub-clause (ii) of Section 65(19) of the Act and not under sub-clause (i) thereof. Though the Supreme Court adverted on the core question of whether the explanation appended to sub-clause (ii) of Section 65(19) has retrospective effect and retroactive operation and secondly what would come within the purview of the definition of “goods” in the context of the sub-clause (i) of clause (19) of Section 65 and definition of goods contained in section 65(50) of the Act. In the conclusion, the hon’ble court in detailed reasoning, ordained that the explanation inserted is the substantive law which would have no retrospective effect and on the second issue, upheld the high court judgment. The Hon’ble court judgment has been reported as UOI v/s Martin Lottery Agencies Ltd [2009(14)STR 593(SC)].
Here at this stage, it is noteworthy that the Supreme Court in the above cited matter did not examine the merits of the explanation added to clause (ii) to section 65(19) vide Finance Act,2008. Though it happened the subject matter of the Writ Petition (Civil) No. 36/2009 in the matter of Future Gaming Solution Pvt Ltd. before the Sikkim High Court who vide order dated 30.07.2010 dismissed the petition to challenge the validity. Apart from this, the subject explanation was also challenged before the Kerala High Court on the stance that they are not rendering any service in the purchase and sale of lottery tickets. The Hon’ble High court did not accept this contention by observing that admittedly lottery tickets are purchased by the petitioners at a discounted price and they, in turn, sell the same by sharing the discount availed by them to retail dealers and discount or commission received by the petitioners as well as the retailers for marketing the lottery tickets is nothing but consideration for service rendered to the promoter or organiser of the lottery i.e State Government. Secondly, it was also observed that without the service rendering by the distributors namely, the petitioners and down line dealers, the lottery tickets will not reach the ultimate customers who are the participants in the draw. So, the bench opined that the whole scheme of the lottery, printing and distribution of tickets, and the conduct of draw involve service from various agencies and the most important service rendered by petitioners is as distributors. That with these observations the Hon’ble court aligned with the Sikkim High Court judgment dated 30.07.2010 and upheld the constitutional validity of the Explanation introduced to Section 65(19)(ii) of the Act. This Kerala High Court decision has been reported as P.Muraleedharan v/s UOI[2012(28)STR 344(Ker)].
The petitioners on becoming unsuccessful in the High Courts, brought the matter before the Supreme Court where on after issuing notices, the matters are pending vide SLP(Civil) No. 26771/2010 and No.3926-3932/2012 respectively.
FROM 01.07.2010 TO 30.06.2012
It is worth noting that before 01.07.2010, the attempts were made to impose a tax on lottery sale/distribution under the aegis of Business Auxiliary Service vide Section 65(19)(ii) read with explanation issued vide Finance Act,2008 but the Finance Act,2010 from 01.07.2010 added following new clause (zzzzn) to Section 65(105) which defines TAXABLE SERVICE in the Act.
(105) “taxable service” means any service provided or to be provided-
‘(zzzzn) to any person, by any other person, for promotion, marketing, organising or in any other manner assisting in organising 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;
The carving out a separate independent service category vide above clause, rendered the explanation added to section 65(19)(ii) infructuous, hence from 01.07.2010, the same was omitted.
Besides above the Central Government to justify the legal position of the lottery distributors/selling dealers as “agent”, notified Lotteries (Regulation) Rules,2010 from 1st April,2010 and in this regulation the distributor/selling agents were described as the individual or a firm or a body corporate or other legal entity under the law so appointed by the Organising State through an agreement to market and sell lotteries on behalf of the Organising State. The perusal of the definition manifested the intention to strengthen the concept of principle-agent to make easier the levy of service tax on the activities of lottery distributor and selling dealers and break the shield of the petitioners taken in the court to keep away service tax levy that their transaction with the state government is upon principal-to-principal basis. In furtherance to its intent, the alternative method to pay tax has also been devised in the service tax rules from 08.10.2010 as under vide Service Tax (Second Amendment) Rules, 2010.
“(7C) The distributor or selling agent, liable to pay service tax for the taxable service of promotion, marketing, organising or in any other manner assisting in organising lottery, referred to in sub-clause (zzzzn) of clause (105) of section 65 of the said Act (hereinafter referred to as the said sub-clause), 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 66 of Chapter V of the said Act:
The new lucidly worded specific service category sparked one more round of the litigation before the Sikkim High Court where the constitutional validity was challenged chiefly on the footing that the conduct of lottery is an act of “betting and gambling”, and the same being a game of chance, the State Legislature under Entry 62 of List II of Seventh Schedule to the Constitution of India has exclusive competence to enact a law to impose taxes. Secondly, the Parliament under its residuary legislative power under Entry 97 of List I, Seventh Schedule to the Constitution of India lacks legislative competence to levy any tax in respect to the activity falling under entries 34 and 62 of State List II.
The hon’ble high court herd both sides and finally declared clause (zzzzn) to sub-section 105 of Section 65 of Finance Act, 1994 as ultra vires and struck down on the reasoning that the activity of promotion, marketing, organizing or in any other manner assisting in organising game of chance including lottery being an activity of “betting and gambling” under Entry 62, List II to Seventh Schedule and the State Legislature alone is competent to levy any tax on such activity under Entry 62 and levying tax on such activities is beyond the competency of the Union Government. This far reaching judgment dated 29.11.2012 has been reported as Future Gaming Solution Pvt Ltd v/s UOI[2015(37)STR 65(Sikkim)]. As usual, the Revenue challenged this high court judgment before the Supreme Court where the Revenue’ Special leave to Appeal No. 11842-11843/2013 has been admitted and tagged with another connected matters and as of now, it is pending for final disposal.
FROM 01.07.2012 TO 13.05.2015
The Finance Act,2012 ushered negative list based service tax regime and term service has been defined vide clause (44) to the section 65B as under;
(44) “service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include—
(a) an activity which constitutes merely,—
(i) a transfer……
(iii) a transaction in money or actionable claim;
(b) a provision of service……..;
(c) fees taken in any Court………….
In the alignment of the definition of service, the betting, gambling or lottery found place in the negative list as under;
66D. Negative list of services. — The negative list shall comprise of the following services, namely
(i)betting, gambling or lottery;
The reading in conjunction of the above provisions professedly brings legislative intent forth that actionable claim is not service and betting, gambling and lottery being the perfect examples of actionable claim, are not liable to tax for the reason, found a place in the Negative list. In such a situation what is the taxable, it may be understood from the Para 4.9.1 of the CBEC Taxation of Services: An Education Guide issued on June 20,2012 wherein FAQ’s, it was clarified that auxiliary services that are used for organising or promoting or betting or gambling events do not fall under the Negative list in view of the principles of interpretation laid down in the section 66F of the Act. In such a situation it was clear that the alternative method to pay tax given in rule 6(7C) of the Service Tax Rules was attributable to those auxiliary service providers only, accordingly from 01.07.2012, this was also re-substituted with suitable changes vide Notification No. 36/2012-ST dated 20.06.2012.
The new service tax regime failed in addressing the root cause of the litigation which again landed the dispute in the Sikkim High Court on the stance that definition of service under Section 65B(44) of the Finance Act, 1994 excludes ‘transaction in actionable claim’ and sale of lottery tickets is also excluded from Service Tax purview in terms of the Negative List under the Section 66D. In addition to these, it was also canvassed that this high court by the judgment dated 29-11-2012 in WP(C) No. 36 of 2011, has already held that the Parliament lacks the necessary legislative competence to enact a law on levy of tax on lotteries.
Per contra, the Revenue asserted that inclusion of lottery in the ‘negative list’ under Section 66D would not exclude the Petitioner from the purview of the Service Tax Law, as amended, as the activities of the Petitioner of providing taxable service of promoting, organising or assisting in arranging the sale of lottery tickets of the Government of Sikkim is quite distinct from lottery itself and, therefore, chargeable under the new law. Further added that it is not a case where the Central Government has imposed any tax on lottery tickets purchased from the Government of Sikkim but is rather being imposed on the activities of the Petitioner and both the activities are mutually exclusive.
The court at this juncture declined the levy of service tax on the sole ground that the activities of the Petitioner comprising of promotions, organizing, reselling or any other manner assisting in arranging of lottery tickets of the State Lotteries do not establish the relationship of a principal and an agent but rather that of a buyer and a seller on principal to principal basis because of the nature of the transaction consisting of bulk purchases of lottery tickets by the Petitioner from the State Government on full payment on a discounted price as a natural business transaction and in natural corollary declared Notification No. 36/2012-S.T dated 20.6.2012 inserting amendment to rule 6(7C) as ultra vires being in excess of the powers vested therein. The judgment dated 24.09.2013 has been reported as Future Gaming Solution India Pvt Ltd v/s UOI[2014(36) STR 733(Sikkim)]. In this matter also the Revenue approached before the Supreme Court where SLP No 8990/2014 has been admitted and notices have been issued.
FROM 14.05.2015 UPTO 13.05.2016
As can be seen, the Negative list basis service tax levy intended to bring the auxiliary activities namely promotion, marketing and organising of the lottery distributors/selling dealers within tax net but the Sikkim High Court judgment dated 24.09.2013 declined the service tax levy on the sole ground that the relation in between the State Government and distributors/selling dealers is not of principal and agent and transactions have been taking place on principal to principal basis. The Central Government on this decision was not ready to relent, therefore injected an Explanation 2 to section 65B(44) vide Finance Act 2015 from 01.06.2015 to exclude auxiliary activities of the lottery distributors/selling dealers and most importantly selling of lottery was also excluded to widen the scope for taxing on entire activities. Accordingly, the explanation may be read as under;
‘Explanation 2. – For the purposes of this clause, the expression “transaction in money or actionable claim” shall not include —
(i) any activity……
(ii) any activity carried out…… or actionable claim, including the activity carried out —
(a) by a lottery distributor or selling agent in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner;
(b) by a foreman of chit fund…..’;
Besides the above explanation, the term “lottery distributor or selling agent” has also been defined by inserting the following clause(31A) in the interpretations in section 65B;
‘(31A) ’’lottery distributor or selling agent” means a person appointed or authorised by a State for the purposes of promoting, marketing, selling or facilitating in organising lottery of any kind, in any manner, organised by such State in accordance with the provisions of the Lotteries (Regulation) Act, 1998 (17 of 1998);’
Further, in the Negative List u/s 66D, the following explanation was added to exclude lottery distributor/selling agents activities from the general scope of betting, gambling or lottery.
“Explanation. – For the purposes of this clause, the expression “betting, gambling or lottery” shall not include the activity specified in Explanation 2 to clause (44) of section 65B;”
The Central Government with the above amendments aimed to make explicitly clear that lottery per se is not subject to service tax but auxiliary activities in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner shall be under the service tax net. This position was clarified by the CBEC Instruction dated 19.05.2015 but this time also the field officers approached the lottery distributor/selling agents engaged in purchasing selling on a principal-to-principal basis, to pay service tax. Those lottery distributors/selling dealers before the Hon’ble High Court once again took their consistent position that the activities involve the purchase of lottery tickets in bulk from the State Government and selling them to stockists, resellers by adding a profit margin and the transaction by which tickets are sold to the petitioner companies by the Government of Sikkim is one of sale and purchase of lottery tickets and not one of the rendering services, thus, the petitioners being not involved in rendering services and the provisions of the Finance Act, 1994 (as amended by the Finance Act, 2015) have no application on the activities undertaken by them.
The hon’ble Sikkim High court on the above averments held that the petitioners in buying and selling the lottery tickets are not rendering service to the State and, therefore, their activities do not fall within the meaning of ‘service’ as provided under Clauses (31A) and (44) of Section 65B and, therefore, outside the purview of Explanation 2 to the said Section. The Sikkim High Court judgment dated 14.10.2015 reported as Future Gaming & Hotel Service(Pvt) Ltd v/s UOI[2015(40)STR 833(Sikkim)].
FROM 14.05.2016 TO 30.06.2017
In an attempt to overcome fallouts of the Sikkim High court verdict dated 14.10.2015, the explanation added vide Finance Act,2015 has been re-worded very next year vide the Finance Act 2016 as under and additional words have been underlined for the sake of the reader’s convenience.
“(a) by a lottery distributor or selling agent on behalf of the State Government, in relation to promotion, marketing, organising, selling of lottery or facilitating in organising lottery of any kind, in any other manner, in accordance with the provisions of the Lotteries (Regulation) Act, 1998 (17 of 1998);”.
The sketchy fine tuning of the explanation proved insufficient and failed in passing judicial scrutiny as this time the Sikkim High Court also in the matter of Future Gaming & Hotel Service(Pvt) Ltd v/s UOI[2017(7)GSTL 161(Sikkim)] quashed the service tax demand vide order dated 23.03.2017 on the ground that there is no payment of any consideration for incidental activities like advertisement etc. and there is no denial of the fact by the respondents(Revenue) that there is any methodology to distinguish the consideration paid for the services for the purposes of the activities in the explanation.
FROM 01.07.2017 ONWARDS IN GST REGIME
In the foregoing discussion, it was palpable to read that the Central Government made their hard endeavour to levy service tax on the stance of the Lotteries(Regulation) Act,1998 and rules framed thereunder where the relation of the lottery distributor/selling dealers was capable to constitute as principal to the agent but the facts were different as the sale-purchase transactions under long time agreements, even renewed in periodic hiatus, in between the State Government and such distributors/dealers, have been taking place on a principal-to-principal basis. The Central Government time and again attempted by bringing legislative changes to draw the line in between the actionable claim(lottery) and auxiliary activities i.e. promotion, marketing or organizing in confirmation to the judicial pronouncements that actionable claim per se is not liable to service tax and what, liable to service tax, is the auxiliary activities but almost every time, the true nature of the transaction in between State government and distributers/selling dealers dominated the proceedings in the Courtroom.
The above age old battle would continue if the GST provisions did not provide a unique solution to subsume goods and service in one sweep and amendment in Entry No. 62 of the State List II of the Seventh Schedule.
In the GST provisions, section 2(52) while defining “goods” included actionable claims unlike Sales Tax Act, 1956 which excluded actionable claims from the definition of the goods. Though in its consistent intention, not to tax actionable itself but bringing the activities of the lottery distributor/selling agents into the tax net lead to place these activities in the Schedule III at the Entry no. 6 as under;
“6. Actionable claims, other than lottery, betting and gambling.”
The net effect of the above arrangement is that GST is not applicable on actionable claims except three items i.e. lottery, betting and gambling, accordingly the tax collection mechanism has been bifurcated as under;
|State Run lottery||@12%||In reverse charge as notified u/s 9(3) vide Notification No. 4/2017-CT(R) dated 28.06.2017 by the distributor/selling agent on supply of ticket by the state/union territory Government to them. The sub-agents/dealers, down the stream, are not liable to tax as tax paid on first point.|
|State Authorized lottery||@28%||Tax payable in forward charge at every stage of supply.|
In this taxing scheme too, the litigious stakeholders appeared not to leave the ground and disputed the discriminatory tax structure before the Calcutta High Court in the matter of Teesta Distributors v/s UOI[2018(19)GSTL 29(Cal)] where the Hon’ble Court did not become kind enough in favour of the taxpayers and upheld the GST council’s competency to fix different rates because of conferment of wide powers in the wake of GST implementation under Article 279A of the Constitution of India.
Though in view of the sub judice proceedings before the Supreme Court in another matter i.e. Skill Loto Solutions Pvt Ltd v/s UOI [Writ Petition (Civil) No. 961/2018] and Council Member’s demand, the issue of two rates were discussed in the 38th GST Council Meeting held on 18th December,2019 and on after lengthy deliberations upon GOM’s report, it was decided to apply single uniform rate @28% on State Run lottery as well as State Authorized lottery with effect from 01.03.2020.
The second dispute in another way regarding the constitutional validity of taxing lottery tickets, betting and gambling in the GST statute triggered litigation and unlike taxing disputes in this regard in earlier taxing Acts, finally settled down with the recent Supreme Court decision in the matter of Skill Loto Solutions Pvt Ltd v/s UOI [2020(43)GSTL 289(SC)]. The Hon’ble court in the detailed judgment adverted upon the number of questions and here from conclusion perspective, discussion on the following two issues is relevant to read up to the end.
The first issue was whether the inclusion of actionable claim in the definition of goods in section 2(52) of Central Goods and Services Tax Act, 2017 is contrary to the legal meaning of goods and unconstitutional. The Supreme Court while answering this question heavily relied upon the Constitutional Bench’s verdict in the matter of Sunrise Associates in which it was held that actionable claims are includible in the definition of goods and had actionable claims were not includible then there was no need for excluding them. In other words, actionable claims are “goods” but not for the purpose of Sales Tax Acts and but for this statutory exclusion, an actionable claim would be “goods” or the subject-matter of ownership. In such a manner, the inclusion of actionable claim under the definition of Goods under section 2(52) of the CGST Act has been upheld to set at rest the first issue.
The second question was whether the exclusion of lottery, betting and gambling from item no. 6 of the Schedule-III of Central Goods and Services Tax Act, 2017 is hostile discrimination and violative of Article 14 of the Constitution of India. While testing this question, the Supreme Court held that it is a duty of the State to strive to promote the welfare of the people and further quoted the Constitution Bench’s observation in the matter of State of Bombay v. R.M.D. Chamarbaugwala and Anr. stating that Constitution makers who set up an ideal welfare State have never intended to elevate betting and gambling on the level of country’s trade or business or commerce. The Supreme Court bench in the present matter further held that in this country, the betting and gambling were never accorded recognition of trade, business or commerce and were always regulated and taxing the lottery, gambling and betting with the objective as noted by the Constitution Bench in the case of State of Bombay v. R.M.D. Chamarbaugwala and Anr. (supra). Thus, Supreme Court rejected the submission of the Petitioner that there is any hostile discrimination in taxing the lottery, betting and gambling and not taxing other actionable claims in Item No. 6 of Schedule-III of the Act, 2017.
The above discussed twin Supreme Court decisions seem to have settled down the constitutional validity issue of taxing lottery, going forward in the GST provisions but the service tax cases on the very issue, pending in the Supreme Court are still a matter of exposure to the litigants.