February 11, 2025
What's the story: The Supreme Court of India has ruled that the central government cannot impose a service tax on lottery distributors, reinforcing the principle that lotteries fall under betting and gambling, a state subject under the Indian Constitution.
The ruling upholds a previous decision by the Sikkim High Court, providing relief to companies like Future Gaming and Hotel Services Pvt. Ltd.. The bench, comprising Justices BV Nagarathna and N Kotiswar Singh, clarified that only state governments can levy taxes on lottery-related activities.
Appeal Dismissal:
The Supreme Court dismissed the Union government's appeal against the Sikkim High Court's decision, reiterating that only state governments have the authority to tax lottery activities. Justice Nagarathna stated, "There being no agency, no service is rendered by the respondent-assessees as agents to the Government of Sikkim."
Tax Liability:
While the court ruled against the service tax, it clarified that lottery companies remain liable to pay gambling taxesimposed by states under Entry 62 of the State List.
Tax Rejection:
The Centre's attempt to levy a service tax on lottery distributors under Entry 97 of the Union List was rejected by the court. This entry empowers Parliament to tax matters not covered by the Constitution, but the court affirmed that betting and gambling remain a matter for states.
Past Ruling:
The dispute dates back to 2010, when Parliament amended the Finance Act, adding a clause that categorized lottery-related activities as taxable services. The Sikkim High Court ruled in November 2012 that lottery distributors do not provide a taxable service and that only states can impose taxes on such activities.