SC dismisses Appeal of UOI-Lottery Agents not liable to Service Tax

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SC dismisses Appeal of UOI-Lottery Agents not liable to Service Tax

AIT News Network

NEW DELHI. 5^th May 2009

The Supreme Court has dismissed the Appeal of Union of India against the Ruling of Sikkim High Court in case of Martin Lottery Agencies Ltd AIT-2007-447-HC

As 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.

Sikkim High Court in case of AIT-2007-447-HC 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)

SC has ruled that "by reason of an explanation, a substantive law may also be introduced. If a substantive law is introduced, it will have no retrospective effect.

The notice issued to the assessee by the appellant has, thus, rightly been held to be liable to be set aside. Subject to the constitutionality of the Act, in view of the explanation appended to this, we are of the opinion that the service tax, if any, would be payable only with effect from May, 2008 and not with retrospective effect.

In a case of this nature, the Court must be satisfied that the Parliament did not intend to introduce a substantive change in the law. As stated hereinbefore, for the aforementioned purpose, the expressions like ‘for the removal of doubts’ are not conclusive. The said expressions appear to have been used under assumption that organizing games of chance would be rendition of service. We are herein not concerned as to whether it was constitutionally permissible for the Parliament to do so as we are not called upon to determine the said question but for our purpose, it would be suffice to hold that the explanation is not clarificatory or declaratory in nature"

Click here for Full Text of Judgment