The Supreme Court today has dismissed the appeal of Union of India against the  judgement  in case of Martin Lottery Agencies Ltd. earlier given by  Sikkim High CourtAs a result of dismissal of appeal filed by the Government; the show cause notices demanding service tax of over Rs 2200 Crore from Lottery Agents are liable to be quashed and demands are to be dropped, AIT has reported.

Sikkim High Court in case of  Writ Petition (C) 19 of 2007, dated on 18-9-2007 held that “On the authority of the Constitution Bench of the Supreme Court which delivered its judgment in the Sunrise Associates case (2006) 5 SSC 603 lottery tickets have to be held to be actionable claims. As such those would not be goods within the meaning of the definition clause in the Sale of Goods Act. If the lottery tickets are not goods, the writ petitioners cannot 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”

DG Central Excise Intelligence had slapped demand of Service Tax on lottery agents alleging that they are commission agents engaged in promotion of sale of goods on behalf of their clients and were thus liable to pay service tax under the notified taxable service of “Business Auxiliary Service”.

Vide Finance Act 2008; the Government has inserted the following Explanation in the definition of “Business Auxiliary Service”

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;’ (vide Finance Act 2008)

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