IN THE HIGH couRT oF slKKIM AT GANGTOK WRIT PETITION (C) No. 21 0F 2009 M/s Tashi Delek Gaming Solutions Pvt. Ltd.,135, Continental Building, Dr. A.B. Road, Worli, Mumbai. Amit Goenka 135, Continental Building, Dr. A.B. Road, Worli, Mumbai. -versus- Union of India, Through its Secretary, Ministry of Finance, Department of Revenue, Nort:h Block, New Delhi. ...Petitioners. The Superintendent of Central Excise, C/o Commissioner of Service Tax, Gangtok Range, Jeewan Theeing Marg, Development: Area, Gangtok, East Sikkim. State of Sikkim" Represented by`the Principal Secretary, Finance, Expenditure & Revenue Deptt., Government of Sikkim, Gangtok' The Director of St:ate Lotteries, State of Sjkkjm, Balwakhani, Gangtok-737101. For the Petitioners For the Respondents ...Respondents. = Mr. Indranil Nandi, Mr. Debashish Kundu, Mr. Satyakam Chakraborty and Ms. Manita Pradhan, Advocates. = Mr. A. Moulik, Sr. Advocate with Ms. K.D. Bhutia, Advocate for Union of India/respondents No. 1 & 2. Mr. Karma Thinlay Namgyal, Govt. Advocate and Mr. S.K. Chettri, Asstt. Govt. Advocate for the St:at:e- respondents. WRIT PETITION (a) No. 30 0F 2009 M/s Sugal & Damani Enterprises Pvt. Ltd. A Company registered under The Companies Act:, 1956 Having its Head Office at 6/35 W.E.A. Karol Bagh, New Delhi-110005 Through Mr. Naresh Mangal, Director, M/s Sugal & Damani Enterprises Pvt. Ltd. ...Petit:ioner -versus- Union of India,, #t:?s::yh::SFfneac#ryr Department of Revenue, North Block, New Delhi. +® 4. The Superintendent of Central Excise, Gangtok Range, Near Community Hall, Development Area, P.O & P.S Gangtok, East Sjkkjm. Stat:e of Sikkim Through the Secretary, Finance, Revenue & Expenditure Deptt., Government of Sikkim, Tashjljng Secretariat, Gangtok, East Sikkim. State Lott:eries, Government of Sikkim, Balwakhani, Gangtok, East Sikkim-737101 Through Director, State Lotteries ...Respondents. Forthepetitioner = Mr. E.R. Kumar, Mr. Arjun Garg, Mr. Ashim Chhetri and Mr. Dhurba Tewari, Advocates. Forthe Respondents : Mr. A. Moulik, Sr. Advocatewith Ms. K.D. Bhutia , Advocate for Union of India/respondents No. 1 & 2, Mr. Karma Thinlay Namgyal, Govt. Advocate and Mr. S.K. Chettri, Asstt. Govt. Advocate for the State- respondents. WRIT PETITION (C) No. 36 0F 2009 M/s Future Gaming Solutions India Private Limited, i (A Privat:e Limited Company registered under the Companies Act, 1956) Having its Registered Office at 355-359, Daisy Plaza, ~0 6th Street, Gandhipuram, Coimbatore (Tamil Nadu) And branch office at Samdrupljng Bujldjng, Kazj Road, Gangtok, East Sikkim Through Mr. P. Ravichandran, Manager, M/s Future Gaming Solutions India Privat:e Limited, -versus- Union of India, Through its Secretary, Ministry of Finance, Department of Revenue, North Block, New Delhi. Commissioner of Service Tax, Siliguri, C.R. Building., Harendra Mukher]'ee Road, Hakimpara Sil District: Darj uri' HO, ...Petitioner The Superintendent of Central Excise, C/o Commissioner of Service Tax, Gangtok Range, Jeewan Theeing Marg, Development Area, . Gangtok, East Sikkim. ...Respondents. For the Petitioner = Mr. A.R. Madhav Rao, Mrs. L. a Chakraborty, Mr. A. Krishna Rao and Mrs. Manju Rai, Advocates. FortheRespondents : Mr. A. Moulik, Sr. Advocatewith Ms. K.D. Bhut:ia, Advocate for Union of India/respondents No. 1, 2 & 3. I (Ill BEFORE : HON'BLE MR. JUSTICE BARIN GHOSH, CHIEF JUSTICE. Dates of Hearing .. 27.07.2010 & 28.07.2010 DalEe of Judgement = Ghosh, CJ. C2>o .o7.2010. JUDGEMENT In a notice dated 30th April, 2007 issued t:o Martin Lottery Agencies Ltd„ it was held out by the Central Revenue that the nature of the transactions between the State Government and Distributors in relation td lottery tickets is not in the nature of sale, but the activity of the Distributors are that of promotion or marketing of lottery tickets for their client i.e. the State Government, and as €r such, the Board of Revenue has decided that the service of Dist:ributors falls under the category of ``Business Auxiliary Service" and t:here fore, are chargeable to Service Tax. The said notice was challenged by Martin Lottery Agencies Lt:d. in a writ petit:ion filed in this Court, registered as W.P. (C) No. 19 of 2007. Cent:ral Revenue, despite opportunity given, did not file count:er to the writ petition. On 18th Sept:ember, 2007 this Court noticing the judgment of the Constitution Bench of the Hon'ble Supreme Court rendered in Sui]ri-se AssoGiaEes vs. Government of NOT of Delhi, reported .ir{ (2®®®) 5 SCC 6®3, where it was held that lottery tickets are actionable claims, held that lottery tickets would not be goods within the meaning of the definition clause in the Sale •of Goods Act and if lottery tickets are not goods, writ petitioner, i.e. Martin Lottery Agen.cies Ltd., cannot said to be rendering any service in relation to the promotion of their client's goods, or marketing of their client's goods, or sale of their client's goods. There is no dispute that liability to pay t:ax if any of Mart:in Lottery Agencies Ltd. accrued by a reason of Finance Act, 1994. At the time when the aforementioned writ petition was de.crided, clauses (i) and (ii) of sub-Section 1 19 of Section 65 of the said Act was as follows: - `` ``business auxiliary service" means any service jn relation to,- ziil H 't -. (i) promotion or marketing or sale of g.oods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or" It is thus apparent that while this Court dealt with the writ petition, it concluded the same by noticing clause (i) of sub-Sect:ion 19 of Section 65 of the Act and did not take notice of clause (ii) of sub-Section 19 of Section 65 of the Act. Against the judgment rendered by this Court in the aforementiQned writ petition, the Central Revenue took the matter before the Hon'ble Supreme Court. The Hon'ble Supreme Court by rendering its judgment in the case of union of India & Others vs. Martin Lottery Agencies 48cF. reported in (2009) 12 SCC 209 dealt with the same. While t:he matter was pending before the Hon'ble Supreme Court, by the Finance Act, 2008, which came into force on or about 16th May, 2008, an explanation to the effect as follows was inserted aft:er clause (ii) of sub-Section 19 of Section 65 E`- of the Finance Act, 1L994: ``Explanation.-Fo+ the removal of doubts, it is hereby declared that for the purpose of this sub-clause, "service in relation to promotion or marketing of service provided by the client" includes any service provided in relation to promotion or marketing of games of chance, organized conducted or .promoted by the client, jn whatever form or by whatever name called, whether or not conducted online, including lottery, lotto, bingo;„ It was contended before the Hon'ble Supreme `'0 Court .ir` Union of Indial vs. Martin Lottery Agencies Ltd.. (supra) that where the State Government involves itself in an illegal activity it cannot render a service, as dealing in lottery is illegal being res extra commercium, no services can be rendered. The Hon'ble Supreme Court expressly held that it does not intend to go into the said issue. It, however, observed that the said issue is a complex one and that the Hon'ble Supreme Court at that sage was primarily required to consider the effect of the said explanation. It held that while t:he State raises its revenue by controlling dealing in liquor and/or by transferring its privilege to manufacture, distribute, sale, etc. as envisaged under Entry 8 of List 11 of the Seventh Schedule to the Constitution of India, thereby it do'e.s not render any service to the society. b, It also held that service tax purports to impose tax on service on two grounds (1) service provided to a consumer, --:a and (2) service provided to a service provider and service provided in respect of the matters envisaged under sub- section 19 of Section 65 of the Act must be construed st:rictly and before tax is found to be leviable, it must come within t:he domain of legitimate business and/or trade. Hon'ble Supreme Court ultimately proceeded to declare that the above explanation thus inserted brought about a change effectively in the existing law and thereby introduced a subst:antive law and the liability if any accrued thereon would accrue wit:h effect from May, 2008 and not with • retrospective effect. Hon'ble Supreme Court did not go into the question of constit:ut:ional validity of the said explanation and expressly left. the same to be decided and ultimately 6- the judgment of t:his Court:, t:hough for different While this Court held that Martin Lottery Agencies Ltd. has no liability under clause (i) of sub-Section 19 of Section 65 of the Act, the Hon'ble Supreme Court did not hold that Martin Lolrfery Agencies Ltd. incurred any liability under clause (ii) of Sub-Section 19 of Section 65 of the Act. It: declar=ed, subject to the constit:ut:ionality of the Act, in 10 view of the explanation appended, service t:ax, if any, would be payable only with effect from May, 2008 and not with ret:rospective effect. At the same time, it did not uphold the const:itutional validit:y of the said explanation. In the present writ pet:ition validity of the said explanation has been challenged. It was urged that the Constitution Bench of the Hon'ble Supreme Court in SunrJ-se jAssoer-ates case (supra.) has held actionable claim as goods, but t:he same was excluded from the meaning of ``goods" dealt with in the Sale of Goods Act, 1930 and t:he State taxation laws considered in the said judgement and t:hat lottery ticket is a kind of actionable claim. It was submitted that if lottery is goods, then it cannot be service. In terms of sub-Section 50 of Section 65 of the Act "goods", in relation to the Act, has the same meaning assigned to it in the Sale of Goods Act:, 1930. Therefore, in terms of the said Act, act:ionable claim including lottery ticket is excluded from the meaning of "goods". 8. It was su*b'mitted that sub-Section 105 of section 1 65 of the Act defines ``taxable services". It was contended that although sub-Section 105 of Section 65 of the Act s``® Saife® t;i,_iJi 11 categorizes different kinds of activities as service provided, but it has not been provided there that dealing with actionable claims or organizing lottery is a service provided and that would be a taxable service. It was contended t:hat if the activity of organizing lottery is service provided then having regard to the fact that the State Government is organizing lott:eries should be held to be liable to pay service. tax, but no provision has been made in the Act in that: regard. It was stated that until date no State Government has been asked to pay service tax on lotteries. It was submitted that in terms of clause (zzb) of sub-Section 105 of Section 65 of the Act, service provided to a client by any person in relation to business auxiliary service would be deemed to be taxable service and at I:he same time in terms of clause (ii) of sub-Sect:ion 19 of Section 65 of the Act any service in relation to promotion or marketing of service provided by the client would be deemed to be business auxiliary service. Therefore, it is the client who has to render service and in relation to such service if any service - is provided to promo.te or market the same, the later service would come within the meaning of business auxiliary service. It was contended that if the client is not providing 12 any service there is no question of rendering any service in relation thereto. It was also contended that the true meaning of the judgment of the Hon'ble Supreme Court in the case Of union of lndial vs. Martin Lottery Agencies fr8dr. (supra) is that no service is provided by the State in relation to lottery and accordingly providing any service in relation to promotion or marking of the same does not arise. . The learned counsel appearing on behalf of the Central Revenue expressly submitt:ed that: service is rendered by organizing lottery. It was submitted that lottery amuses or entertains the ultimate buyer of lott:ery ticket:s and in relation thereto service is rendered by organizing lottery. If that be so the explanation does not effectively change the existing law. In such event it should be deemed that what was there in clause (ii) of sub-Section 19 of Section 65 was merely clarified in t:he explanation. However, it has been held by t:he Hon'ble Supreme Court in the case Of Union of India vs. Martin Lottery Agencies frfld. (supra) that trhe same was not the situation. The 1 logical conclusion, therefore, would be that a game of chance organized, conducted or promoted by the client is a:C) 13 not service provided by the client as mentioned in clause (ii) of sub-Section 19 of Section 65 of the Act. 10. Further in the case of B.R, Enterpri-se vs. Sfafe of U.P. & offaers reported in (1999) 9 SCC 700, the Hon'ble Supreme Court, has in no uncertain terms, held t:hat lottery is gambling. It is a vice. The excitement of a lottery ticket holder after purchase of lottery t:icket until the draw may amuse or entertain the holder, but such excitement being in connection with a vice cannot be taken in a civilized society either as amusement or as entertainment. Accordingly, an activity in organizing such an excitement cannot be treated as service. Amongst various observations made .in union of India vs. Martin Lottery Agencies Ltd. (supra), t:here is an observation that activity that of lottery may be brought within the purview of ``entertainment" or "amusement''. This observation was made taking note of certain port:ion of UN-CPC. It was not brought to the notice of the Hon'ble Supreme Court that the said part of UN-CPC was not accepted€.by this Country, documentary proof thereof is on the rec`ord of these cases. i., 14 1Ea In the circumstances, the explanation must be deemed to be a substantive law introduced thereby and that is also t:he conclusion of the Hon'ble Supreme Court in the case Of union Of lndlia vs. Martin Lottery Agencies Ltd. (supra). In other words, the explanation should not be looked at in connection with service provided by the client as mentioned in clause (ii) of sub-Section 19 of Section 65 of t:he Act. fl2. At this juncture, it would be appropriate to \ remember that Hon'ble Supreme Court in the case of Union of India vs. Martin Lott.ery Agencies Ltd. has held that the expression like ``for the removal of doubts" are r\ot conclusive. In other words, the explanation which has effectively changed the existing law may be read as a substantive law without reading the expression "for the removal of doubts". In the explanation it has been declared "service in relation to promotion or marketing of service provided by the client includes any service provided in relation t:o promotiegn or marketing of games of chance, organized, conductebd or promoted by the client ................... !' In other words, games of chance, organized, conducted or 15 €C) promoted by the client has not been declared as service. What has been declared as service is any service provided in relation to promotion or marketing thereof. The concept of service in the explanation is t:otally alien to the concept of service in clause (ii) of sub-Section 19 of Section 65 of the Act. In other words, while the service rendered in `promotion or marketing of service provided by the client is business auxiliary service in t:erms of clause (ii) of sub- section 19 of Section 65 of the Act and is accordingly taxable service provided to the client in relation to business auxiliary service in terms of clause (zzb) of sub-Section 105 of Section 65 of t:he Act; service provided in relation to promotion, or marketing of games of chance, organized, conducted or promoted by the client is business auxiliary service and accordingly is taxable service in terms of clause (zzb) of sub-Section 105 of Section 65 of the Act. Therefore, although the client is not providing any service by organizing or conducting or promoting games of chance, any service provided in relation t:o promot:ion or marketing of the +r same would become`taxable service. 16 13. It was urged that organizing or conducting or promoting games of chance is res extra commercium and accordingly the same is illegal. -a 14. The word ``extra commercium" means beyond commerce, i.e. which cannot be bought: or sold, such as public roads, rivers, titles of honour, etc. There is no dispute that an action of organizing or conducting or promot:ing games of chance as that of lottery by a State Government is also res extra commercium. While by doing so the State Government also does not render any service t:o any one, except to itself by generating revenue, but it cannot be contended that the action is illegal, particularly, having regard to law applicable to the Indian society guided by the Constitution of India, inasmuch as Entry 40 of List I of Seventh Schedule of the Constitution of India specifically empowers the Parliament to make laws pertaining to lotteries organized by the Government of India or the Government of a Stat:e. Organization of lotteries by a State is, thus, a permissible activity of the State. The learned I counsel appearing on behalf of the petitioners also accept 17 ~±6 '1 that organizing or conducting or promoting games of chance as that of lottery by the State Government is not illegal. 15. It was submitted by placing reliance on the judgement of t:he Hon'ble Supreme Court rendered in the case Of AIB India Fedn. of Tax Pralctitioners vs. union of Zmdj.a report:ed in 2007 (7) STR 625 (SC) that service which can be said to be a taxable service must add value to the product: or the service. To that there cannot be any disput:e. However, I think, if the explanation is read, as it should be read, independently then the value addition, if any, by rendering service to the action of the client in organizing or conducting or promoting games of chance as that of lottery would be taxable service.. It was contended that tickets are priced by State Government at Rs.1/-each, which are purchased by the petitioner at Rs.0.70. It was submit:ted that the price of the activity is paid at the discounted rate and accordingly there is no question Of value addition. The fact remains that lottery tickets are purchased not for th~eir consumption but for the purpose of marketing the sam€. In order to market lottery t:ickets petitioner is required, in terms of the agreement it has with 18 . the State Government, to put up and the pet:itioner in fact puts up advertisements. It t:hereby entices the ultimate buyer of lottery tickets t:o purchase the same. It thus promotes the act:ivity of its client, the State Government, in organizing lottery. In the matt:er of enabling its client to sale a lottery ticket worth Rs.1/- at Rs.1/-to the ultimate buyer of lottery ticket:s petitioner renders service thus. value of lottery tickets without the promotional and marketing activity of t:he petitioner is 70 paise, which by reason of marketing and promot:ional act:ivity of the •petitioner becomes Rs.1/-when the same reaches the ultimate purchaser of lottery tickets. Petit:ioner thus makes a value addition to t:he activity of organizing or conducting or promoting games of chance as that of lottery by the State Government from 70 pais: to Rs.1/-by providing marketing and promotional service thereto by its activities as above. There is thus value addition by the petitioner in relation t:o '\il game of chance, organized, conducted or promoted by the 11 |t client of t:he petitioner namely, the stat:e Government. i RIir I11 fl6. It was not urged t:hat t:he residuary clause contained in List I of the Seventh Schedule of 19 ``=<.- fa !Constitution of India on Entry 92C thereto does not authorize levy of service tax on service provided in relation to an actMty which though may not be service or which may be res extra commercium, but act:ivity. , a legal and permissible fl7. The word petitioner used above should mean all . the three writ pet:it:ioners. 18. I, accordingly, conclude I:he matter and dismiss the writ petitions. 19. Stay prayed for is refused. CHIEF JUSTICE