W.P. (C) Nos. 39-40 of 2015. Case: Future Gaming & Hotel Services (Pvt.) Ltd. Vs Union of India. Sikkim High Court
| Case Number | W.P. (C) Nos. 39-40 of 2015 |
| Counsel | For Appellant: Shri A.R. Madhav Rao with Rajat Mittal, Ms. Laxmi Chakraborty, Ms. Rogena Gurung, Surajit Dutta with Ms. Binita Chhetri, Advocates. and For Respondent: Shri D.K. Singh with Jigmi P. Bhutia, Advocates, J.B. Pradhan, Additional Advocate General with S.K. Chettri and Ms. Pollin Rai, Assistant Government Advocates. |
| Judges | Sonam Phintso Wangdi and Meenakshi Madan Rai, JJ. |
| Issue | Finance Act, 1994 - Section 65B |
| Citation | 2015 (40) STR 833 (Sikkim) |
| Judgement Date | October 14, 2015 |
| Court | Sikkim High Court |
Judgment:
Sonam Phintso Wangdi, J.
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These writ petitions are taken up together to be disposed of by this common judgment as the facts and circumstances and questions involved for determination are common.
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Both the petitioners are companies incorporated as Private Limited Companies under the Indian Companies Act, 1956, who are engaged in the business of sale of paper and online lottery tickets respectively organised by the Government of Sikkim. Petitioner in W.P. (C) No. 39 of 2015, namely, M/s. Future Gaming Solutions Pvt. Ltd., dealing with paper lottery tickets, entered into an Agreement dated 24-1-2015 [Annexure P-1 (collectively)] for 5 (five) years whereby petitioner procures the lottery tickets in bulk from the Government and resells the same to the public at large through various agents, stockists, resellers, etc., whereas the petitioner in W.P. (C) No. 40 of 2015, namely, M/s. Summit Online Trade Solutions Pvt. Ltd., dealing with online lottery tickets, entered into an Agreement with the State of Sikkim on 9-5-2005 followed by a Supplementary Agreements dated 25-4-2008 and 9-11-2015 [Annexure P-1 (collectively)]. Mutual terms and conditions concerning the sale and purchase of lottery tickets between the State Government and the petitioners are governed and regulated by the contractual stipulations contained in the aforesaid Agreements.
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The petitioners are aggrieved by the enforcement of the provision of Finance Act, 1994, as amended by the Finance Act, 2015, upon them with effect from 1-6-2015. By the amendment, certain changes were brought to various Clauses under Sections 65B, 66D and 67 of the Finance Act, 1994, by which the respondent No. 1, the Union of India through its Secretary, Ministry of Finance, Department of Revenue, Government of India, sought to make service tax applicable to the petitioner-companies.
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In the writ petitions, the petitioner companies, inter alia, challenge the jurisdiction of the respondents Nos. 1, 2 and 3 and the legality of their actions in enforcing provisions of the Finance Act, 1994 as amended by the Finance Act, 2015, upon the petitioner companies with effect from 1-6-2015.
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As a consequence of the amendment, the respondents Nos. 2 and 3 issued the impugned letter dated 25-5-2015 to the petitioner-company in W.P. (C) No. 39 of 2015 and letters dated 18-5-2015 and 12-6-2015 to the petitioner-company in W.P. (C) No. 40 of 2015 bringing to their notice that service providers in respect of services provided by lottery distributors and selling agents were amenable to service tax as prescribed under sub-rule (7C) of Rule 6 of the Service Tax Rules, 1994. It is the case of the petitioners that the amended provisions of the Finance Act, 1994, as a consequence of the Finance Act, 2015, do not cover the activities of the petitioners which involve purchase and sale of lotteries. The impugned letters dated 25-5-2015, 18-5-2015 and 12-6-2015 respectively and the action of the respondents seeking to enforce the provisions of Finance Act, 1994 (as amended by the Finance Act, 2015) are illegal and without jurisdiction.
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It is averred that the activities of the petitioners involve purchase of lottery tickets in bulk from the State Government and selling them to stockists, resellers, etc., by adding a profit margin. The stockists, resellers, etc., in turn sell these tickets to retailers which in turn sell them to the ultimate participants of the draw. It has been stated that the transaction by which tickets are sold to the petitioner-companies by the Government of Sikkim is one of sale and purchase of lottery tickets and not one of rendering services. Thus, the petitioners being not involved in rendering services, the provisions of the Finance Act, 1994 (as amended by the Finance Act, 2015) have no application on the activities undertaken by them.
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It is next averred that tax cannot be imposed by a Parliamentary Law on lottery tickets in view of List II of Seventh Schedule to the Constitution of India under Entry 34 of which the subject-matter of "betting and gambling" and the subject-matter of "taxes on betting and gambling" under Entry 62, fall within the sole competence of the State Legislature and, therefore, the levy of service tax is ultra vires the Constitution of India. The impugned letter dated 25-5-2015 in W.P. (C) No. 39 of 2015 and letters dated 18-5-2015 and 12-6-2015 to the petitioner-company in W.P. (C) No. 40 of 2015 and the action of the respondents to enforce the provisions of the Finance Act, 1994 (as amended by the Finance Act, 2015) are thus illegal and without jurisdiction.
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It is next contended that vide Notification No. 7/2015-S.T., dated 1-3-2015, Annexure P4, in W.P. (C) No. 39 of 2015, service tax under reverse charge is imposed on the services provided by the selling or marketing agent of lottery tickets to the petitioners. It is stated firstly, that the activity of the agents of the petitioners are not covered under Notification No. 7/2015-S.T. as they are not engaged in providing any services but, in buying and selling of tickets from the petitioners. The liability cast upon the petitioners vide Notification No. 7/2015-S.T. to discharge service tax on reverse charge basis is not sustainable as the activity of selling or marketing agent is not covered under service tax being an activity pertaining to actionable claims which also amounts to betting, gambling and lottery under the negative list. It is asserted that the activity of the agent to the distributors/petitioners who buy and sell tickets from the petitioners/distributors is squarely covered under "betting and gambling" under List II to the Seventh Schedule to the Constitution of India which is a subject-matter of State Legislature and not that of the Union Government.
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It is then contended that the compounding scheme or optional composite scheme for payment of service tax introduced by way of sub-rule (7C) of Rule 6 in the Service Tax Rules, 1994, as amended, does not enable charging of service tax if the levy under the main Act fails as held in Future Gaming Solutions India Private Limited v. Union of India and Others - 2014 (36) S.T.R. 733 (Sikkim) (hereinafter referred to as "Future Gaming Case 2014"). It is further stated that the petitioners obtained service tax registration under the Finance Act, 1994, and opted for payment of service tax under the compounding scheme provided under sub-rule (7C) of Rule 6 of the Service Tax Rules, 1994, under protest. It had been made clear by the petitioners that since appeal against the judgment of this Court in Future Gaming Case 2014 (supra) and Future Gaming Solutions Private Limited v. Union of India and Others - 2015 (37) S.T.R. 65 (Sikkim) (hereinafter referred to as "Future Gaming Case 2015") were pending in the Hon''ble Supreme Court of India and no order of stay on those judgments had been passed, any attempt on the part of the respondents to charge service tax would be illegal in view of the decision in Mafatlal Industries Ltd. and Others v. Union of India and Others - (1997) 5 SCC 536 = 1997 (89) E.L.T. 247 (S.C.).
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The petitioners further state that although this Court vide judgment dated 22-6-2015 in W.P. (C) No. 45 of 2015 in the matter Mrs. J. Geetha v. State of Sikkim and Others, the proceedings undertaken by the State in respect of lottery including the appointment of the distributors who were the petitioners herein, was set aside, the draws concluded till 22-6-2015 remain unaffected which was clarified by order dated 24-6-2015 in Review Petitions Nos. 4 and 5 of 2015 permitting the State Government to conduct the proposed draws till 12-7-2015 for which the tickets were already in circulation. Therefore, it is the contention of the petitioners that though the agreement dated 24-1-2015 entered into between the petitioner in W.P. (C) No. 39 of 2014 and agreement dated 9-5-2005 followed by supplementary agreements dated 25-4-2008 and 9-11-2015 in W.P. (C) No. 40 of 2014 the State Government had been set aside, service tax liabilities on the petitioners, on the draws conducted till 12-7-2015 still remained. Further, the petitioners having obtained centralised registration under service tax in the State of Sikkim in respect of lotteries of the State of Sikkim sold in other States and of other States in the State of Sikkim, it had a valid cause of action to agitate the issue before this Court.
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It is the contention of the petitioners that the provisions construed by this Court in Future Gaming Case 2014 (supra) and Future Gaming Case 2015 (supra) have since been amended with the objective of levying service tax on the distributors or selling agents of lottery. But, the amendments have not overcome the law laid down in those cases. Relying upon Delhi Cloth & General Mills Co. Ltd. and Another v. State of Rajasthan and Others - (1996) 2 SCC 449, it is submitted that when a Legislature sets out to validate a tax declared by a Court to be illegally collected under an ineffective or an invalid law, the cause for ineffectiveness or invalidity must be removed before validation can be said to take place effectively. It is asserted that in the amendments, the collection of service tax on the activities of the petitioners and their agents have not been validated by the amendments brought to the Finance Act, 1994 vide the Finance Act, 2015. Having regard to the fact that the term "actionable claim" defined under Section 65B of the Finance Act, 1994, have the same meaning assigned to it in Section 3 of the Transfer of Property Act, 1882, whereby it has been defined, inter alia, as a claim "to any beneficial interest in moveable property not in the possession" of the claimant, it is submitted that in the context of the lottery ticket, it would mean a claim to any beneficial interest in movable property which is not in the possession of the claimant and that such a beneficial interest may be contingent.
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It is asserted that...
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