DECEMBER 09, 2020

By Vijay Kumar

TAXING  Lottery had been a taxing proposition for the government, not always leading to a successful lottery win. 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.

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 hugely 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'.

The High Court of Sikkim in 2015 - 2015-TIOL-2398-HC-SIKKIM-ST 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.

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

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 held a lottery is an 'actionable claim' and goods or moveable property.  

The matter was also 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.

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 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 could convince the Supreme Court that lottery tickets are goods and can be taxed. And they did.

GST Lottery - Gambling?   Sometime back, a very knowledgeable GST officer asked me,  "Lottery, betting and gambling are some of the items that fall under actionable claims. However, these are goods as per goods definition under Section 2(52) of CGST Act. But it seems Customs Tariff Act, 1975 which is basis for determination of classification of goods for GST taxation purpose, doesn't have an entry. It seems the lottery, betting and gambling are classified as services with SAC codes." 

He was not simply asking an innocent question, but raising serious doubts. 

Look at some facts: 

-  Section 2(52) of the CGST Act defines goods as: "goods" means 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; 

-  As per item 6 of the III Schedule to the CGST Act, Actionable claims, other than lottery, betting and gambling are activities or transactions which shall be treated neither as a supply of goods nor a supply of services. 

-  Notification  1/2017-Central Tax (Rate)  notifying the rate of CGST for goods has included lottery at Sl. No. 228 of Schedule III and Sl. No. 242 of Schedule II, but in both these places, there is no tariff item, which is shown as a dash (-). 

-  The above notification clarifies that  "Tariff item" ,  "sub heading"   "heading"  and  "Chapter"  shall mean respectively a tariff item, sub-heading, heading and chapter as specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975). 

-  Notification No.  11/2017-Central Tax (Rate)  notifying the rate of services has  "Gambling"  as item No. 34 (v). 

- Lottery services figures under service code 999694, making it a service. Similarly, Gambling and betting services fall under the service code 999692. 

Perhaps, the Government was not sure whether lottery was goods or service or both, but they were determined to tax it. Board was aware of this problem within a couple of months of GST regime, when it was brought to its notice that that due to discrepancy in code allotted, i.e., lottery is defined as goods but code allotted for lottery is under services, the assessees are not able to upload return or deposit tax in time. 

The Board in Circular No.  06/06/2017-CGST , dated 27th August, 2017 clarified, 

It should be noted that the process of filing return is linked with rate of tax specified for supply. Further, there is complete clarity about rate of tax on lotteries. As mentioned above, in GST, lottery is goods and the classification indicated in relevant notification for lottery is "-", which means any chapter. 

That being so, it is clarified that the classification for lottery in respective CGST, IGST, UTGST and SGST notifications shall be 'Any Chapter' of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975) and tax on lottery should be paid accordingly at prescribed rates, 12% or 28%, as the case may be. 

But why service codes were given to some items falling under actionable claims.  That, only God and perhaps Board can answer.

But finally, the government won the lottery, when the Supreme Court last week in Skill Lotto Solutions Pvt Ltd vs UOI - 2020-TIOL-176-SC-GST-LB , observed:

Definition of goods as occurring in Section 311(12) of Government of India Act, 1935 although was noticed by this Court in Gannon Dunkerley and Co .(supra) but definition of goods was not further elaborated. Definition of goods as occurring in Article 366(12) is inclusive definition and does not specifically excludes actionable claim from its definition. Whenever inclusive definition is given of an expression it always intended to enlarge the meaning of words or phrases, used in the definition.

Legislatures resort to inclusive definitions (1) to enlarge the meaning of words or phrases so as to take in the ordinary, popular and natural sense of the words and also the sense which the statute wishes to attribute to it, (2) to include meanings about which there might be some dispute, or, (3) to bring under one nomenclature all transactions possessing certain similar features but going under different names. ....

The definition of goods under Section 2(52) of the Act, 2017 does not violate any constitutional provision nor it is in conflict with the definition of goods given under Article 366(12). Article 366 clause(12) as observed contains an inclusive definition and the definition given in Section 2(52) of Act, 2017 is not in conflict with definition given in Article 366(12).

Parliament by the Constitution (One Hundred and First Amendment) Act, 2016 inserted Article 246A a special provision with respect to goods and services tax. The Parliament was fully empowered to make laws with respect to goods and services tax. Article 246A begins with non obstante clause that is "Notwithstanding anything contained in Articles 246 and 254", Which confers very wide power to make laws. The power to make laws as conferred by Article 246A fully empowers the Parliament to make laws with respect to goods and services tax and expansive definition of goods given in Section 2(52) cannot be said to be not in accord with the constitutional provisions.

The submission of the petitioner that actionable claims have been artificially included in the definition of goods cannot be accepted. The Constitution Bench has clearly laid down that actionable claims are goods. We, thus, do not agree with the submission that Parliament has exceeded its jurisdiction in including actionable claims in the definition of "goods" under Section 2(52).

The Court concluded,

The inclusion of actionable claim in definition "goods" as given in Section 2(52) of   Central Goods and Services Tax Act, 2017   is not contrary to the legal meaning of goods and is neither illegal nor unconstitutional.

The Supreme Court also observed,

It is a duty of the State to strive to promote the welfare of the people by securing and protecting, as effectively as it may, a social order in which justice, social, economic and political, shall inform all the institutions of the national life. The Constitution makers who set up an ideal welfare State have never intended to elevate betting and gambling on the level of country's trade or business or commerce. In this country, the aforesaid were never accorded recognition of trade, business or commerce and were always regulated and taxing the lottery, gambling and betting was with the objective as noted by the Constitution Bench in the case of State of Bombay Vs. R.M.D. Chamarbaugwala and Anr. we, thus, do not accept the submission of the petitioner that there is any hostile discrimination in taxing the lottery, betting and gambling and not taxing other actionable claims. The rationale to tax the aforesaid is easily comprehensible as noted above. Hence, we do not find any violation of Article 14 in Item No. 6 of Schedule III of the Act, 2017.

Thus ends the long taxing travel of lottery – hopefully!

Until next week