SC Rules: Only States Can Tax Lotteries – No Service Tax by Centre
SC Rules: Only States Can Tax Lotteries – No Service Tax by Centre
.jpg)
Introduction
In a significant verdict, the Supreme Court of India ruled that lottery distributors are not liable to pay service tax to the Central Government. The apex court upheld the Sikkim High Court's 2012 decision, stating that only state governments have the power to impose taxes on lotteries under Entry 62, List II of the Seventh Schedule of the Constitution of India.
This ruling brings clarity to the taxation of lotteries, reinforcing the exclusive authority of states over gambling-related activities.
The Supreme Court's Judgment
Key Observations by the Bench
🔹 The bench of Justices BV Nagarathna & N Kotiswar Singh dismissed the Centre’s appeal, citing that the Finance Act amendments of 2012, 2015, and 2016, which sought to levy service tax on lottery distributors, were ineffective.
🔹 The SC upheld that the business of lotteries operates on a Principal-to-Principal basis, meaning that lottery distributors are not agents of the government. This further invalidates the Centre’s claim to levy service tax.
🔹 The Court agreed with the Sikkim High Court’s 2012 ruling, which held that lotteries fall under “Betting and Gambling”, a State subject under Entry 62, List II of the Constitution.
🔹 The SC observed that Parliament lacks legislative competence to impose service tax on lotteries under its residuary power (Entry 97, List I of the Seventh Schedule).
Understanding the Constitutional Provisions
Seventh Schedule of the Indian Constitution
The Seventh Schedule divides legislative powers between the Union and the States into three lists:
🔹 List I – Union List (Subjects on which only the Centre can legislate)
🔹 List II – State List (Subjects on which only States can legislate)
🔹 List III – Concurrent List (Subjects where both the Centre and States can legislate)
Where Does Lottery Taxation Fall?
Under Entry 62, List II (State List):
✅ “Betting and Gambling” is under the exclusive jurisdiction of the States.
✅ Lotteries fall within this definition, meaning only States can impose taxes on them.
Under Entry 97, List I (Union List):
✅ Parliament has residuary powers, meaning it can legislate on matters not specifically mentioned in the State List.
❌ However, since “Betting & Gambling” is already included in the State List, the Centre cannot use residuary powers to impose service tax on lotteries.
The Centre's Argument & Why It Failed
The Central Government argued that since lottery distributors provide a service, they should be liable to pay service tax under the Finance Act, 1994.
However, the SC ruled that:
❌ Lottery is not a service but falls under "Betting & Gambling."
❌ The Centre has no power to tax a subject exclusively under State jurisdiction.
Thus, the Finance Act amendments attempting to levy service tax on lottery distributors were unconstitutional.
Impact of the Supreme Court’s Ruling
✅ State Governments will continue to have full control over taxation on lotteries.
✅ Lottery distributors will no longer be liable to pay service tax to the Centre.
✅ The ruling sets a precedent for similar cases where the Centre attempts to impose taxes on subjects that fall exclusively under State jurisdiction.
✅ Strengthens federalism by reinforcing State autonomy in taxation matters.
Conclusion
The Supreme Court’s ruling is a landmark decision in Indian tax law, reaffirming that lotteries are a State subject under the Constitution. This decision not only protects the rights of state governments but also clarifies the scope of taxation powers between the Union and the States.
With this verdict, lottery distributors are now free from the burden of paying service tax to the Centre, reinforcing the principle of federalism in India's governance structure.
Comments
Post a Comment