Whether The levy of GST on Lottery, Betting and Gambling Constitutionally Valid?
A lottery is a means of raising money by selling numbered tickets and giving prizes to the holders of numbers drawn at random. It has its set rules and a fixed amount of prize funds in advance. It can be considered a game of luck. Here candidates randomly become the winner. Parliament in the year 1998 enacted a dedicated Act titled “Lotteries (Regulation) Act, 1998” for regulation of Lotteries and matters connected to it.
But the lottery is often criticized for being an addictive form of gambling. Gambling is the betting or staking of something of value, with a consciousness of risk and hope of gain on the outcome, whose result may be determined by chance or accident or have an unexpected result.
Table of Contents:
- Background of the Case
- Skill Lotto Solutions Pvt Ltd. vs Union of India
- Contentions of the Petitioner
- The Contentions of Learned Additional Solicitor General for the Union of India
- Issues in the Case
- Decision of the Supreme Court
- Conclusion
- Case Laws
- Sunrise Associates v. Govt. of NCT of Delhi and Others
- Madras v. Gannon Dunkerley and Co. (Madras) Ltd.
- Anraj and Ors. V. State of Maharashtra
- Anraj Vs. Government of Tamil Nadu
- Navinchandra Mafatlal Bombay Vs. Commissioner of Income Tax
- Union of India and Ors. Vs. Martin Lottery Agencies Limited
Background of the Case
Petitioner, Skill Lotto Solutions Pvt. Ltd., an authorized agent, for the sale and distribution of lotteries organized by the State of Punjab moved the Court to file a writ petition. It challenged the inclusion of ‘actionable claims’ in the definition of goods under section 2(52) of the Central Goods and Services Tax Act, 2017 (hereafter referred to as 2017 Act) and consequential notifications to the extent it levies a tax on lotteries.
The 2017 Act under Section 2(52) provides for the definition of ‘goods’. It defines goods as every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply. Further, it specifies that under actionable claims only lottery, betting and gambling shall be imposed with taxes.
The Skill Lotto Solutions Pvt. Ltd. contended the levy of tax on the lottery as discriminatory, violative of Fundamental Rights and contrary to the Supreme Court’s judgement in the case of Sunrise Associates Vs Government of NCT of Delhi, where the lottery was held to not to be included in the definition of ‘goods’.
Skill Lotto Solutions Pvt Ltd. vs Union of India
Before the regulation of lottery by the Parliament, it was regulated by states through their different legislations. These legislations were enacted before the Constitution’s enforcement and levied a tax on the sale of lottery tickets. Reference was made to the Bengal Finance Sales Tax Act, 1941 and Madras General Sales Tax Act, 1939.
Various litigations were filed in courts challenging the levy of tax on lottery tickets. The Supreme Court in the case of Skill Lotto Solutions had the opportunity to decide the constitutionality of the levying of tax on the lottery ticket.
Contentions of the Petitioner
- The Petitioner contended for quashing and setting aside of the definition of ‘goods’, to the extent it levies a tax on lottery, through an appropriate writ, order or direction under section 2(52) of the 2017 Act. As per the petitioner, such tax levying on the lottery is discriminatory and violative of Article 19(1)(g), 301, 304 of the Constitution of India.
- Article 19(1)(g):Protection of certain rights regarding freedom of speech, etc.-
All citizens shall have the right to practice any profession or to carry on any occupation, trade or business.
- Article 301: Freedom of trade, commerce and intercourse-
Subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free.
- Article 304: Restrictions on trade, commerce and intercourse among States-
Notwithstanding anything in article 301 or article 303, the Legislature of a State may by law— (a) impose on goods imported from other States 1 [or the Union territories] any tax to which similar goods manufactured or produced in that State are subject, so, however, as not to discriminate between goods so imported and goods so manufactured or produced; and
(b) impose such reasonable restrictions on the freedom of trade, commerce or intercourse with or within that State as may be required in the public interest
- The Petitioner contended to quash and set aside the various notifications including Notification of the Respondent State of Punjab to the extent it levies a tax on the lottery ticket.
- The learned senior counsel of the Petitioner Shri Ravindra Shrivastavacontended that levying of Goods and Services Tax (hereafter referred as GST) on the lottery is ultra vires to the Constitution of India as, under the 2017 Act, GST is to be levied only on goods.
- He contended that Article 366(12)of the Constitution of India defines goods as to include all materials, commodities and articles and excludes actionable claims as they are not specifically mentioned in the Article. Whereas, the 2017 Act in Section 2(52) defines goods to include actionable claims and is unconstitutional.
He further contended that the Apex Court in the case of Sunrise Associates v. Govt. of NCT of Delhi and Others (2006), has held a lottery to not to be considered as a good. As the Supreme Court has already held that lottery is not a ‘good’, then the 2017 Act which considers lottery as a ‘good’ is against the judgement given by the Constitution Bench in the Sunrise Associates case.
- The inclusion of actionable claim in the meaning of goods is done deliberately to bring the lottery under the scope of GST.
- He further submitted that levying GST on the face value of the lottery ticket is not permitted as a lottery’s face value also includes the prize money to be reimbursed to the winners.
- As per the counsel, no absolute poweris vested with the Parliament to make an inclusive definition of something which is to be taxed, that was otherwise not taxable.
- He further contended that levying of tax only on lottery, betting and gambling when all other actionable claims are not been put under the net of tax is discriminatory as no rationale has been provided for the same.
- The Supreme Court in the case of Madras v. Gannon Dunkerley and Co. (Madras) Ltd. held the definition of ‘goods’ under Sale of Goods Act, 1930 to be the definition of ‘goods’ under the Constitution and the said definition under the Sale of Goods Act, 1930 excludes actionable claims.
The Contentions of Learned Additional Solicitor General for the Union of India
- Shri Vikramjit Banerjee, the Learned Solicitor General for the Union of India by refusing the submissions made by the petitioner’s counsel submitted that the Writ Petition filed by the petitioner under Article 32 is not maintainable.
- The lottery is ‘res extra commercium’and the petitioner does not have any right under Article 19(1)(g) and Article 301 concerning lottery. The transaction of the lottery tickets is not to be brought up to the status of trade, commerce and intercourse as used in Article 301.
- There is no point for the petitioner to file a writ petition under Article 32 of the Constitution of India as they do not enjoy any kind of right that can be enforced through such filing. Thus, their writ petition needs to be dismissed.
- He further contended that laws of civil rights are different from that of economic activities which are to be viewed with greater latitude and thus both should be viewed differently.
- It is not discriminatory to leave all other actionable claims and levy tax only on lottery, betting and gambling.
- The definition of ‘goods’ under Section 2(52) of the 2017 Act is in accordance with the decision of the Apex Court in the case of Sunrise Associates v. Govt. of NCT of Delhi and Others (2006) and thus the petitioner’s argument that the definition of goods under Section 2(52) of the 2017 Act is contrary to the above-stated judgement is incorrect.
- The Parliament under Article 246Aof the Constitution is competent to levy GST on the lottery.
- The levy of GST on lotteries has been approved by the GST Council under Article 279Aof the Constitution, thus, the inclusion of the actionable claims in the definition of ‘goods’ under section 2(52) is in accordance with the legislative and taxing policy.
- The levying of GST on the face value of the lottery ticket is authorized by the 2017 Act under its section 15(1) read with section 15(5). Such levying on face value is not discriminatory nor is beyond the taxing powers of the state.
- Placing reliance by the counsel of the petitioner on the judgement of Madras v. Gannon Dunkerley and Co. (Madras) Ltd.is not to be attracted to the facts of the present case.
Issues in the Case:
- Lottery being res extra commercium, will a writ petition be unsustainable under Article 32 of the Constitution and no protection can be claimed under Article 19(1)(g)?
- Whether the inclusion of actionable claims in the definition of goods provided under the 2017 Act is unconstitutional and contrary to the legal meaning of goods?
- Whether for the purposes of the levy of GST, prize money is to be excluded for determining the face value of the lottery?
Decision of the Supreme Court
Coram: Justice Ashok Bhushan, Justice R. Subhash Reddy, Justice M.R. Shah
As on the Issue No. I:
The petitioner in the present case challenges the provision of the 2017 Act to the extent it imposes a tax on the lottery. The levying of GST is been attacked by calling it as discriminatory as only it is levied on lottery, betting and gambling while all other actionable claims are excluded from tax. The petitioners also contend violation of their Fundamental rights under Article 14 of the Constitution.
In the view of the Court, a writ petition alleging the violation of Article 14 especially concerning a Parliamentary Act can very well be entertained under Article 32 of the Constitution.
The Apex Court while looking into the present matter focused on the previous judgements of this Court in H. Anraj and Ors. V. State of Maharashtra (1984) where the writ petitioner, who were agents for the sale of tickets for the lottery filed a writ petition questioning the ban imposed on the sale of lottery tickets within the State of Maharashtra.
Even the judgment of this Court in H. Anraj Vs. Government of Tamil Nadu, (1986) was also a writ petition, which was heard along with a civil appeal questioning the leviability of the sales tax by the State Legislature on the sale of lottery tickets.
Thus, in the opinion of the grounds, which have been raised in the writ petition, the writ petition cannot be said to be not maintainable under Article 32 and the preliminary objection made by the learned Additional Solicitor General that the writ petition cannot be entertained under Article 32 is overruled.
As on the Issue No. II
In the view of the Court, the definition of goods under Section 2(52) of the 2017 Act does not violate any constitutional provision nor conflicts with the definition of goods given under the definition of ‘goods’ in the Constitution’s Article 366(12).
Further, under Article 246A the Parliament is fully empowered to make laws concerning goods and services tax and therefore the expanded definition of goods given in section 2(52) of the 2017 Act cannot be said to be not in accordance with the constitutional provisions.
The inclusion of actionable claim in definition “goods” as given in Section 2(52) of the 2017 Act is not contrary to the legal meaning of goods and is neither illegal nor unconstitutional.
As on the Issue No. 3
The petitioner contends that for the levy of GST, the prize money should be removed from the face value of the lottery ticket. The petitioner has also relied on various taxing statutes of other countries, wherein the petitioner submits that prize money of the lottery ticket is not being computed for levy of tax.
In the view of the Court when the levy of GST, determination of taxable value is governed by the Parliamentary Act in this country, the legislative scheme of other countries may not be relevant for determining the issue before the Court. The taxing policy and the taxing statute of various countries are different which are in accordance with taxing regime suitable and applicable in different countries.
The issue which has been raised before the court has to be answered by looking into the statutory provisions of the Act, 2017 and the Rules framed therein which govern the field.
The Supreme Court held that the petitioner is not entitled to reliefs as claimed in the writ petition.
When the 2017 Act defines the goods to include actionable claims and included only three categories of actionable claims, i.e., lottery, betting and gambling for purposes of levy of GST, it cannot be said that there was no rationale for including these three actionable claims for tax purposes.
Conclusion
Thus, on December 3, 2020, the Supreme Court upheld the constitutionality of the levying of GST on lottery, betting and gambling. It was held that no Constitutional provision is violated in levying GST on lottery tickets.
Moreover, the inclusion of actionable claim in the definition of ‘goods’ under Section 2(52) of the 2017 Act is not contrary to the legal meaning of goods and is not in conflict with the definition of ‘goods’ under Article 366(12) of the Constitution of India.
Article 246A introduced via the 101st Amendment Act, 2016 the Parliament is much capable to make laws relating to GST.
Through the judgement of the Constitutional Bench of the Supreme Court in the case of Navinchandra Mafatlal Bombay Vs. Commissioner of Income Tax, it is understood that a narrow interpretation of any term leaves no scope for its larger interpretation in the future.
In a later decision of the Apex Court in the case of Union of India and Ors. Vs. Martin Lottery Agencies Limited it was held that the levy of service tax on a lottery ticket is not ultra vires to the Constitution.
Thus, in the case of Skill Moto Solutions Pvt Ltd. vs Union of India, a three-Judge panel concluded the levying of GST on the lottery, betting and gambling to be Constitutionally valid.