SC Rules Lottery Distributors Exempt from Central Service Tax

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The Supreme Court of India declared that lottery distributors are not obligated to pay service tax to the Union government. The ruling came as the Court dismissed the Centre’s appeal against a prior decision by the Sikkim High Court, reinforcing that taxation on lotteries falls solely under state jurisdiction.

Supreme Court Upholds State Authority Over Lottery Taxation

According to The New Indian Express, the Supreme Court upheld the Sikkim High Court’s ruling, emphasizing that only state governments have the authority to impose taxes on lotteries. The bench, comprising Justices B.V. Nagarathna and N.K. Singh, ruled that there is no agency relationship between lottery distributors and the state, making service tax inapplicable. Justice Nagarathna stated, “Since there is no agency in the relationship, the respondents (lottery distributors) were not liable to pay service tax. However, the respondents will continue to pay the gambling tax levied by the state under Entry 62, List II of the Constitution.”

The Centre had argued that it was entitled to levy service tax on lottery distributors. However, the Supreme Court found no merit in this appeal, clarifying that transactions between lottery ticket purchasers and firms do not fall under the purview of service tax. The Court concluded, “Service tax is not leviable on the transactions between the purchaser of the lottery tickets and firm. In view of the aforesaid discussions, we find no merit in the appeals filed by the Union of India and others. Hence, these appeals are dismissed.”

This ruling underscores the constitutional provision that classifies lotteries under “betting and gambling,” which is part of Entry 62 of the State List. Consequently, only state governments have the jurisdiction to impose taxes on such activities. The Centre had initially approached the Supreme Court in 2013, challenging the Sikkim High Court’s decision favoring Future Gaming Solutions Pvt Ltd, a lottery firm.

The Supreme Court’s decision reaffirms the exclusive authority of state governments to tax lottery activities, providing clarity on the division of taxation powers between the Centre and the states.

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