DECEMBER 25, 2019

By Vijay Kumar

A Press release issued by PIB on 18.12.2019 after the 38th meeting of the GST Council states that the Council has decided to levy a single rate of GST @ 28% on both State run and State authorized lottery. This change shall become effective from 1st March, 2020.

Taxing  Lottery had been a taxing proposition for the government, not always leading to success. The lottery business in India is a big-time lottery for the organisers and ticket sellers - rather it was until GST dawned on the horizon.

Interestingly, the small North Eastern States are the origin for many lotteries and most of the tickets are sold deep down South in Kerala. Technology has only added a new dimension to the vice. While many states have banned lotteries, Internet knows no geographic boundaries and online lotteries are doing brisk business.

Unfortunately, governments have been interested only in getting their pound of flesh by taxes, instead of curbing the menace, which is simply an organised way of looting the poor people.

Government's attempts to bring sale of lottery tickets under Service Tax net were not really successful. The Department tried to tax it under 'business auxiliary service' from 01.07.2003, but that did not find favour with the Courts. Then they amended the Act to include an explanation to the definition of 'business auxiliary service'.

By Finance Act 2010, a new heading zzzzn was introduced which included lottery. This was also struck down by a High Court. Come 2012 and lottery fell in the negative list, but the positive officers of the Department were not prepared to accept such negative attitude of the Government and Parliament.

The High Court of Sikkim in 2015 struck down the provisions imposing Service Tax on lottery. While the service tax issue had not attained finality, we were blessed with a lottery of GST.

In fact, this issue was debated in the Constituent Assembly.

Please note these two entries in List-II State List in the Seventh Schedule to the Constitution of India (before the GST amendment)

34. Betting and gambling.

62. Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling.

So, if lottery comes under Betting and Gambling, only the States could tax it.

In the Constituent Assembly, when this was discussed, Prof. Shibban Lal Saksena said,

"Sir, betting and gambling are being legalised by this entry in the Schedule. I thought that gambling was a crime and so I am surprised to see that gambling and betting are provided for as a legitimate field of activity under this Schedule. In fact, I was sorry that entry No.78 in List I was passed without any opposition,

"Lotteries organised by the Government of India or the Government of any State."

I think that this is against the principles to which we are committed. Gambling and betting should be banned. Sir, I strongly oppose this entry.”

Mr. Lakshminarayan Sahu said:  Mr. President, I am opposing this for the reason that when we are going to build the entire structure of our State on the foundations of truth and non-violence, when we are guided by the lofty ideals of Mahatma Gandhi, there should be no mention at all of betting and gambling in the Constitution we are to frame. The very mention of these words would indicate that our National Government favours the idea of encouraging betting and gambling and seeks to have its own control on them. Have we forgotten the lessons of the Mahabharat? Taxation on such items does not appear proper. The clause relating to lottery laid down in the Constitution, is also not proper.

The brilliant Dr. B. R. Ambedkar replied :  Sir, I am very much afraid that both my friends, Mr.Shibban Lal and Mr. Sahu, have entirely misunderstood the purport of this entry and they are further under a great misapprehension that if this entry was omitted, there would be no betting or gambling in the country at all. I should like to submit to them that if this entry was omitted, there would be absolutely no control of betting and gambling at all, because if entry was there it may either be used for the purpose of permitting betting and gambling or it may be used for the purpose of prohibiting them. If this entry is not there, the provincial governments would be absolutely helpless in the matter.

I hope that they will realise what they are doing. If this entry was omitted, the other consequence would be that this subject will be automatically transferred to List I. The result will be the same,  viz.  the Central Government may either permit gambling or prohibit gambling. The question, therefore, that arises is this - whether this entry should remain here or should be omitted here and go specifically as a specified item in List I. If my friends are keen that there should be no betting and gambling, then the proper thing would be to introduce an article in the Constitution itself making betting and gambling a crime, not to be tolerated by the State. As it is, it is a preventive thing and the State will have full power to prohibit gambling.

And thus 'gambling and betting' stayed put in the Constitution.

Under the GST regime, lottery created more confusion than the situation prevailing earlier.

In the 32 nd GST Council meeting on 10th January 2019, the Joint Secretary, TRU explained to the Council that at present, GST rate on lottery run by State government was 12% and GST rate on lottery authorized by State Governments was 28%. However, this differential was being misused by the trade and majority of them were paying tax @12%. He further explained that the proposal was for rationalisation of GST rates on Lottery by increasing tax rate on State run lotteries to 28 % from the present 12%. Further, if the GST rate was increased to 28% from 12%, it would lead to revenue gain of approximately Rs. 1250 crore. He added that the details are contained in agenda for removing the differential tax rates for lotteries which are as follows: -

1. There was only one type of lottery allowed in the States i.e. the one which conforms to the provisions of Section 4 of the Lotteries Regulations Act, 1998. Discrimination in GST rates was leading to reduction of sales especially in major States of Maharashtra and Punjab.

2. It was beyond comprehension as to how two different rates of GST could be fixed on same product when sold in the State itself and when sold in the other States, which was against the provisions of the Competition Act, 2012. Discrimination did not exist in any other category of products.

3. The huge variation of 16% between two rates helped the larger States to exploit customers as smaller States could not compete with them. High differential rates encouraged non-compliance by small business.

4. Calcutta High Court in a judgement dated 10.10.2018 in the case of M/s Teesta Distributor vs UoI - 2018-TIOL-2882-HC-KOL-GST had upheld the prevailing rate structure. Even then, the product being a sin/de-merit good, needed to be taxed at rates higher than 12%. The high differential in tax rate also led to malpractice of attempting to avail tax rate of 12% by mis-representation.

The GST Council decided to form a Group of Ministers (GoM) on Lottery in which States dealing in lottery such as Kerala, Maharashtra, Goa, some North Eastern States along with one representative State from non-lottery States to examine aspects like the disparity in rates of lottery, case of private enrichment at the cost of State, tax evasion aspects, etc.

Meanwhile, the matter was before the Supreme Court in a writ Petition. On 30.04.2019, the Additional Solicitor General submitted that the issues raised in the writ petition shall be considered by the Group of Ministers (GoM) and they are under active consideration as on date.

The GST Council, in its 35th meeting on 21 st June 2019 discussed the recommendations of the GoM on lottery. The Council was informed that the following issues were placed before the GoM:

a. Whether two rates for GST on lottery should continue;

b. Whether private persons were misusing the lower GST rate of 12%;

c. To examine enforcement issues including legal and appropriate tax rates to address the problem;

d. Issues referred by Hon'ble Supreme Court in WP (C) No. 961/2018.

The recommendation of the GoM on these issues were:

a. On the issue of destination principle, the GoM had noted that there already existed a decision in the 28th Meeting of the Council, which suggested certain changes in the rules and a circular was to be issued. Kerala Government had already implemented it and the other States were requested to implement the changes in the rules as suggested.

b. As far as 'valuation' and Constitutional challenge to levy of GST issue was concerned, it had arisen out of Supreme Court Writ petition whether "lottery" was a 'Goods' or not. After considerable deliberation in the framing stage of law, initially, the Council had decided that lottery would be 'Goods'. The GoM had also recommended that the present position of the law should be forcefully explained to the Supreme Court that lottery should be continued to be taxed as 'Goods'.

c. As far as online lottery was concerned, the recommendation of GoM was that the experience of the State Government of Kerala and West Bengal indicated that banning of online lottery had led to the increase in revenue. Therefore, other State governments might consider examining that aspect. Maharashtra had volunteered to submit a draft on regulation of online lottery, which would be examined in consultation with Ministry of Home Affairs with whom the subject lies at present.

d. As far as multiple representations from Associations on other issues were concerned, like the rate and valuation issues of Casinos, Horse Racing, Online Gaming, Betting, although, a little beyond the terms of reference, but having received those representations, the GoM had directed that they might be forwarded to the Fitment Committee and Law Committee. Once the recommendations of the Fitment Committee and the Law committee on the subject were received, they would be brought before the Council either through GoM or directly as directed by the Union Finance Minister.

The Council was informed that there was no unanimity on the rate of tax on lottery, whereas on all other issues there was unanimity in the GoM. As far as the issue of rate on Lottery was concerned, the decision was to be taken by the Council.

On 04.12.2019, the Additional Solicitor General informed the Supreme Court that the GST Council meeting is on 18.12.2019 and all issues are likely to be considered and appropriate decision will be taken. He prayed that matter be heard in January, 2020 to enable him to bring before the Court decision taken by the GST Council. The matter is listed for 15.01.2020.

The GST Council met on 18.12.2019 and decided to levy a single rate of 28% on all lotteries. Now, the question of dual rate is no more relevant, but the question still remains whether lottery can be treated as goods for GST - and who decides that? GST Council or Supreme Court?

The chance of winning a lottery is said to be about 0.00000034%. It seems there are better chances of

- Dying from an asteroid strike

- Getting killed by a terrorist act

- Getting murdered during a trip to the Himalayas

- Dying from chronic constipation

- Becoming a movie star

- Getting struck by lightning

Still people buy lottery tickets as

Though remote is the chance,

There's still the romance

That our rupee may buy us a dream.

But there is money for the government, if it can convince the Supreme Court that lottery tickets are goods and can be taxed.

Merry Christmas and a Happy New Year

Until next week