Centre can't impose service tax on lottery distributors: Supreme Court
What's the story
The Supreme Court of India has ruled that the central government cannot levy a service tax on lottery distributors.
The decision upholds a previous ruling of the Sikkim High Court and comes as a relief to companies like Future Gaming and Hotel Services Pvt. Ltd.
The bench, comprising Justices BV Nagarathna and N Kotiswar Singh, clarified that lotteries fall under "betting and gambling," a state subject under the Indian Constitution.
Appeal dismissal
Court dismisses Centre's appeal, upholds state taxation rights
The Supreme Court dismissed the Union government's appeal against the Sikkim High Court's decision, reiterating that only state governments can tax lottery-related activities.
Justice Nagarathna said, "There being no agency, no service is rendered by the respondent-assessees as agents to the Government of Sikkim."
"Therefore, service tax is not leviable on the transactions between lottery ticket purchasers and the Government of Sikkim," stated Justice Nagarathna.
Tax liability
Lottery companies remain liable for state-imposed gambling tax
However, the court clarified that lottery companies still have to pay gambling taxes levied by states under Entry 62 of the State List.
The decision is based on constitutional provisions that divide taxation powers between the Centre and states.
Entry 62 gives states the power to tax betting and gambling, including lotteries, while Entry 34 gives them the power to regulate such activities.
Tax rejection
Supreme Court rejects Centre's attempt to impose service tax
The Centre had tried to levy a service tax on lottery distributors by citing Entry 97 of the Union List, which empowers Parliament to tax matters not covered under the Constitution.
However, the Supreme Court rejected the move as it ruled betting and gambling are state subjects.
The dispute dates back to 2010, when Parliament amended the Finance Act, adding a clause categorizing lottery-related activities as taxable services.
Past ruling
Sikkim High Court's 2012 ruling favored lottery companies
Lottery companies challenged this amendment in the Sikkim High Court, contending that their activities are state-regulated under Entry 62.
In November 2012, the Sikkim HC ruled in favor of these companies, striking down the added clause of the Finance Act.
The court held that lottery distributors don't provide a taxable service and reaffirmed that only states can impose taxes on betting and gambling.