Taxability of sale of lotteries and other related issues have been among one of the contentious issues between industry and the Government, both Centre and the States. We have carried the legacy of this dispute to the GST regime, with the Government introducing a tax on sale of lottery tickets after the 17th GST Council meeting in June 2017.

GST is levied on sale of lotteries tickets under two different categories, namely “lottery run by State Government” at 12% and “lottery authorized by State Government” at 28%. The fundamental difference between both categories is that lotteries run by State Government cannot be sold in any State other than the organizing State, while lotteries authorized by State Government are free to be sold in any other State.

However, after much hue and cry from the lottery industry recently a single rate of 28% has been introduced by the exchequer on all kinds of lotteries on specified value.

Point of tussle
In pre GST regime, Service Tax also applied on distribution of lotteries on consideration which was defined as any amount retained by the lottery distributor or selling agent i.e. difference between sale and purchase price. Further, there was also an option to pay Service Tax @ Rs. 8200/-or Rs. 12800 on every 10,00,000 (i.e. 0.82 or 1.82%) of aggregate face value.

Important point to be noted is that GST has been introduced by virtue of insertion of Article 246A in the Constitution, which empowered parliament to make laws regarding imposition of Tax on goods and services. Further, goods under GST laws include “actionable claims”. However, any actionable claims other than lotteries, betting and gambling are outside the purview of CGST Act itself.

Thus, lottery industry has been contending levy of GST on sale of lotteries when other actionable claims have been excluded from its purview. Further, value of supply and rate of tax on this business is also a bone of contention.

Recent development
The lottery industry challenged the constitutional validity of definition of Goods under GST Act to the extent of inclusion of actionable claims before the Supreme Court. Further, the Notification levying tax on distribution of lotteries was also challenged and alternatively prayed for abatement in taxable value and uniform lower rate of GST on such sales of Lotteries.

The argument of the petitioner was that there is ‘hostile discrimination’ in taxing only lottery by excluding all other actionable claims from the purview of GST which is also contrary to definition of Goods in Article 366 (12) of the Constitution which does not specifically include “actionable claims”.

Supreme Court lays down the jurisprudence
The Constitution bench of the apex court in the matter of Skill Lotto Solutions Pvt. Ltd. Vs. Union of India & Ors has put all uncertainty to rest and held that Article 246A of Constitution is a special provision empowering the parliament to make laws regarding goods and services tax and needs to be liberally construed.

The Supreme Court relying on its own judgement in the matter of Sunrise Associates vs. Govt. of NCT of Delhi and Ors which held that actionable claims are to be included in the definition of Goods and if it was not to be included, then there was no need for excluding them specifically from the definition in Sales Tax laws in earlier regime. It was held that definition of “Goods” under the GST laws having much wider ambit and is in consonance with Article 366 (12) and 246A of Constitution.

Further on the question of hostile discrimination, the Apex Court has observed that taxation of gambling and lottery was well in practice even prior to independence, therefore inclusion of actionable claims only in respect of lotteries and gambling cannot be termed as hostile discrimination. Moreover, valuation mechanism under the GST laws has also been upheld, therefore, prize money is rightly included in the taxable value of sale of lotteries for the purpose of levy of tax.

Through Skill Lotto the apex court has laid down the jurisprudence on this prolonged issue of taxability of sale of lottery, which means pending litigations across the industry can finally end. It would not be wrong to say that this judgement is against the expectation and contention of the lottery industry, but still there is some hope left as the Supreme Court has left the issue of rate of tax open for challenge through a separate petition. Taking this ray of hope ahead, industry may expect that valuation aspect will eventually get settled in case of a favorable order on petition on this aspect leading to lower rate of tax in the future.

Smita Singh is Partner & Ajay Sharma Associate, Indirect Tax, Trade & Customs at Singh & Associates.

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