The Supreme Court on Tuesday (February 11, 2025) held that a sole distributor who purchases lottery tickets from a State government for onward sales is not liable to pay service tax.
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The judgment was pronounced by a Bench of Justices B.V. Nagarathna and Satish Chandra Sharma reasoned that a distributor was not an agent of the State.
The verdict dismissed the appeals filed by the Union government against a Sikkim High Court decision which declared clause (zzzzn) of the Section 65(105) of the Finance Act, 1994 as inserted by the Finance Act, 2010 as unconstitutional.
The clause introduced the activity of “promotion, marketing, organising or in any other manner assisting in organising game of chance, including lottery” as a taxable service.
The respondents in this case were lottery distributors, including Future Gaming Solutions.
Agreeing with the High Court, Justice Nagarathna observed there was no service rendered by the lottery distributor to the State. There was no service tax leviable between the distributor and the State.
“When sole purchaser or distributor or promoter buys lottery tickets from the State government for onward sales, it is not acting as an agent of the State, but acting on its own right as a principal,” Justice Nagarathna read out from the judgment.
The apex court held the relationship between the State and the distributor is not that of a principal-agent, but that of principal-principal.
The respondents had contended that lottery was an act of betting and gambling which came under the State List. The Centre had no jurisdiction to levy tax through a Central law.
Published - February 11, 2025 12:44 pm IST
