A bench of Justices BV Nagarathna and NK Singh delivered the judgment, stating that lottery distributors are not acting as agents of the government. Therefore, they are not liable to pay service tax.
New Delhi:Today (11th Feb): The Supreme Court of India has ruled that lottery distributors do not have to pay service tax to the Central Government. The court dismissed the Centre’s appeal against a Sikkim High Court judgment that had earlier ruled in favor of the lottery distributors.
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A bench of Justices BV Nagarathna and NK Singh delivered the judgment, stating that lottery distributors are not acting as agents of the government. Therefore, they are not liable to pay service tax.
“Since there is no agency in the relationship, the respondents (lottery distributors) were not liable to pay service tax. However, the respondents will continue to pay the gambling tax levied by the state under Entry 62, List II of the Constitution,”
said Justice Nagarathna while announcing the verdict.
The top court clarified that service tax is not applicable to transactions between a purchaser and a lottery firm. It stated:
“Service tax is not leviable on the transactions between the purchaser of the lottery tickets and firm. In view of the aforesaid discussions, we find no merit in the appeals filed by the Union of India and others. Hence, these appeals are dismissed.”
With this ruling, the Supreme Court upheld the decision of the Sikkim High Court, reinforcing that only state governments have the authority to impose taxes on lotteries.
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The Centre argued that it had the right to impose service tax on lottery-related transactions. However, the Supreme Court disagreed and ruled that lotteries fall under “betting and gambling,” which is listed under Entry 62 of the State List in the Constitution. Therefore, only state governments can impose taxes on lotteries.
The court affirmed that “the high court was right in holding that the lottery comes within the expression ‘betting and gambling‘ which is part of Entry 62 of the state list of the Constitution and only the state can impose the tax.”
Background
The dispute began when Future Gaming Solutions Pvt Ltd, a lottery firm, challenged the imposition of service tax. The Sikkim High Court ruled in favor of the company, leading the Centre to appeal the case to the Supreme Court in 2013. After years of litigation, the Supreme Court has now upheld the high court’s ruling, bringing clarity to the taxation of lottery businesses.
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