Lottery distributors not liable to pay service tax to Centre: Supreme Court

Holding that lottery distributors are not liable to pay service tax to the Union Government, the Supreme Court on Tuesday dismissed the Centre’s appeal against the Sikkim High Court’s judgement on the issue.

“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 (Seventh Schedule) the Constitution,” a bench of Justice BV Nagarathna and Justice NK Singh said.

Pronouncing the verdict, Justice Nagarathna said, “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.”

Upholding the Sikkim High Court verdict, the bench said it is only the state government that can impose taxes on lotteries and not the Centre. The Centre had contended that it was entitled to impose service tax.

The high court verdict had come on a petition filed by Future Gaming Solutions Pvt Ltd.

The bench, however, the respondent companies will continue to pay the gambling tax levied by the state under Entry 62, List II.

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. The Centre had moved the top court in 2013, it said.