Decided on July 30,2010

Tashi Delek Gaming Solutions Pvt. Ltd. And Another Appellant


Barin Ghosh, J. - (1.) IN a notice dated April 30, 2007 issued to Martin Lottery Agencies Ltd., it was held out by the Central Revenue that the nature of the transactions between the State Government and distributors in relation to lottery tickets is not in the nature of sale, but the activity of the distributors are that of promotion or marketing of lottery tickets for their client, i.e., the State Government and as such, the Board of Revenue has decided that the service of distributors falls under the category of "business auxiliary service" and therefore, are chargeable to service tax. The said notice was challenged by Martin Lottery Agencies Ltd. in a writ petition filed in this court, registered as W.P. (C) No. 19 of 2007. Central Revenue, despite opportunity given, did not file counter to the writ petition. On September 18, 2007, this court noticing the judgment of the Constitution Bench of the honourable Supreme Court rendered in Sunrise Associates v. Government of NCT of Delhi reported in : [2006] 3 VST 151 (SC) : [2006] 145 STC 576 (SC) : [2006] 6 RC 488 : [2006] 5 SCC 603, where it was held that lottery tickets are actionable claims, held that lottery tickets would not be "goods" within the meaning of the definition clause in the Sale of Goods Act and if lottery tickets are not goods, writ petitioner, i.e., Martin Lottery Agencies Ltd., 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 (See Martin Lottery Agencies v. Union of India : [2009] 24 VST 24 (Sikkim) [Appx.]). There is no dispute that liability to pay tax if any of Martin Lottery Agencies Ltd. accrued by a reason of the Finance Act, 1994. At the time when the aforementioned writ petition was decided, clauses (i) and (ii) of sub -section (19) of section 65 of the said Act was as follows: '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
(2.) IT is thus apparent that while this court dealt with the writ petition, it concluded the same by noticing clause (i) of sub -section (19) of section 65 of the Act and did not take notice of clause (ii) of sub -section (19) of section 65 of the Act (See Martin Lottery Agencies v. Union of India : [2009] 24 VST 24 (Sikkim) [Appx.]). Against the judgment rendered by this court in the aforementioned writ petition (See Martin Lottery Agencies v. Union of India : [2009] 24 VST 24 (Sikkim) [Appx.]), the Central Revenue took the matter before the honourable Supreme Court. The honourable Supreme Court by rendering its judgment in the case of Union of India v. Martin Lottery Agencies Ltd. reported in : [2009] 24 VST 1 (SC) : [2009] 12 SCC 209, dealt with the same. While the matter was pending before the honourable Supreme Court, by the Finance Act, 2008, which came into force on or about May 16, 2008, an Explanation to the effect as follows was inserted after clause (ii) of subsection (19) of section 65 of the Finance Act, 1994: 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, organized, conducted or promoted by the client, in whatever form or by whatever name called, whether or not conducted online, including lottery, lotto, bingo;
(3.) IT was contended before the honourable Supreme Court in Union of India v. Martin Lottery Agencies Ltd. reported in : [2009] 24 VST 1 (SC) : [2009] 12 SCC 209, that where the State Government involves itself in an illegal activity it cannot render a service, as dealing in lottery is illegal being res extra commercium, no services can be rendered. The honourable Supreme Court expressly held that it does not intend to go into the said issue. It, however, observed that the said issue is a complex one and that the honourable Supreme Court at that stage was primarily required to consider the effect of the said Explanation. It held that while the State raises its revenue by controlling dealing in liquor and/or by transferring its privilege to manufacture, distribute, sale, etc., as envisaged under entry 8 of List II of the Seventh Schedule to the Constitution of India, thereby it does not render any service to the society. It also held that service tax purports to impose tax on service on two grounds (1) service provided to a consumer, and (2) service provided to a service provider and service provided in respect of the matters envisaged under sub -section (19) of section 65 of the Act must be construed strictly and before tax is found to be leviable, it must come within the domain of legitimate business and/or trade. The honourable Supreme Court ultimately proceeded to declare that the above Explanation thus inserted brought about a change effectively in the existing law and thereby introduced a substantive law and the liability if any accrued thereon would accrue with effect from May, 2008 and not with retrospective effect. The honourable Supreme Court did not go into the question of constitutional validity of the said Explanation and expressly left the same to be decided and ultimately upheld the judgment of this court, though for different reasons.;

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