Supreme Court Upholds GST on Lotteries, Dismisses Discrimination Claims: Skill Lotto Solutions vs. Union of India (2020)

Introduction

Date of the Judgment: 03 December 2020

Citation: (2020) INSC 949

Judges: Ashok Bhushan, J., R. Subhash Reddy, J., and M.R. Shah, J.

Can the government levy Goods and Services Tax (GST) on lottery tickets, and is it fair to tax lotteries while exempting other actionable claims? The Supreme Court of India recently tackled these questions in a significant judgment, addressing the legality of GST on lotteries and whether it constitutes discrimination. This case, Skill Lotto Solutions Pvt. Ltd. vs. Union of India & Ors., examines the constitutional validity of including lotteries within the definition of “goods” for GST purposes.

The core issue revolves around whether lottery tickets can be classified as “goods” under the Central Goods and Services Tax Act, 2017, and whether taxing lotteries while exempting other actionable claims is discriminatory. The Supreme Court bench, comprising Justices Ashok Bhushan, R. Subhash Reddy, and M.R. Shah, delivered the judgment.

Case Background

Skill Lotto Solutions Pvt. Ltd., an authorized agent for the sale and distribution of lotteries organized by the State of Punjab, filed a writ petition challenging the levy of GST on lotteries. The petitioner argued that lotteries should not be considered “goods” under the Central Goods and Services Tax Act, 2017 (Act No. 12 of 2017), and that the tax was discriminatory and violated Articles 14, 19(1)(g), 301, and 304 of the Constitution of India.

The petitioner contended that the definition of “goods” in the Constitution of India, under Article 366(12), includes only materials, commodities, and articles, thus excluding actionable claims like lotteries. The petitioner also argued that the GST was being levied on the face value of lottery tickets, which includes prize money that is eventually reimbursed to winners and does not form part of the petitioner’s income.

The petitioner also highlighted that while the Central Goods and Services Tax Act, 2017 includes actionable claims within the definition of goods, it excludes all actionable claims except lottery, betting, and gambling from the purview of GST, which is discriminatory.

Timeline:

Legal Framework

The core legal provisions and statutes relevant to this case include:

• Article 366(12) of the Constitution of India: Defines “goods” as including “all materials, commodities, and articles.”
• Section 2(7) of the Sale of Goods Act, 1930: Defines “goods” as “every kind of movable property other than actionable claims and money.”
• Section 3 of the Transfer of Property Act, 1882: Defines “actionable claim” as a claim to any debt or beneficial interest in movable property not in possession.
• Section 2(52) of the Central Goods and Services Tax Act, 2017: Defines “goods” as “every kind of movable property other than money and securities but includes actionable claim.”
• Section 2(1) of the Central Goods and Services Tax Act, 2017: Defines “actionable claim” as having the same meaning as in Section 3 of the Transfer of Property Act, 1882.
• Article 246A of the Constitution of India: Grants Parliament the power to make laws with respect to goods and services tax.
• Schedule III, Item No. 6 of the Central Goods and Services Tax Act, 2017: Lists “actionable claims other than lottery, betting and gambling” as activities or transactions that are neither supply of goods nor supply of services.
• Section 15 of the Central Goods and Services Tax Act, 2017: Deals with the value of taxable supply.
• Rule 31A of the Central Goods and Services Tax Rules, 2017: Specifies the value of supply for lottery, betting, gambling, and horse racing.

The Central Goods and Services Tax Act, 2017 was enacted by the Parliament to levy and collect tax on intra-State supply of goods or services or both by the Central Government. The Act defines “goods” to include actionable claims, which is a key point of contention in this case.

Arguments

Petitioner’s Arguments:

• The petitioner argued that the definition of “goods” under Section 2(52) of the Central Goods and Services Tax Act, 2017, is unconstitutional because it includes actionable claims, which are excluded from the definition of goods under the Sale of Goods Act, 1930, and the Constitution.
• The petitioner contended that the Constitution Bench of the Supreme Court in Sunrise Associates vs. Govt. of NCT of Delhi and Ors., (2006) 5 SCC 603, had held that a lottery is not a good, and the provisions of the Act, 2017, treating lottery as goods, is contrary to this judgment.
• The petitioner submitted that GST is levied on the face value of lottery tickets, which includes prize money that is reimbursed to the winners, and this is impermissible.
• The petitioner further argued that taxing only lottery, betting, and gambling while exempting all other actionable claims is discriminatory and violates Article 14 of the Constitution.
• The petitioner contended that the observations made in the judgment of Constitution Bench in Sunrise Associates (supra) that lotteries are actionable claims are only obiter dicta and cannot be treated to be ratio of the judgment.

Respondent’s Arguments:

• The respondent argued that the writ petition filed under Article 32 of the Constitution is not maintainable because lottery is “res extra commercium,” and no right under Article 19(1)(g) and Article 301 can be claimed.
• The respondent submitted that the definition of goods given in Section 2(52) of Act 2017 is in accord with the Constitution Bench judgment of this court in Sunrise Associates (supra).
• The respondent contended that the definition of goods under Article 366(12) of the Constitution is an inclusive definition, and lottery, having been judicially held to be an actionable claim, is covered within the meaning of “goods” under Section 2(52).
• The respondent argued that the Union Parliament has the competence to levy GST on lotteries under Article 246A of the Constitution.
• The respondent submitted that the levy on the face value is authorized by Section 15(1) read with Section 15(5) of the Act, 2017, and Rule 31(A) of the Central Goods and Services Tax Rules, 2017.
• The respondent pointed out that Rule 31A has been amended, merging the two separate rates for lotteries, and thus, the argument of discrimination in the rate of tax is no longer valid.

Intervenor’s Arguments:

• The intervenor argued that the Constitution permits tax on goods, and actionable claims being not taxed under the Constitution, the Parliament cannot have the power of taxing lottery.
• The intervenor submitted that the prize money in a lottery deducted from a lottery claim ought not to be taxed at all.
• The intervenor contended that exclusion of all actionable claims from levy of GST except three, i.e., lottery, betting, and gambling is nothing but hostile discrimination.

[TABLE] of Submissions

Issues Framed by the Supreme Court

The Supreme Court framed the following issues for consideration:

1. Whether the writ petition is not maintainable under Article 32 of the Constitution of India since the writ petition relates to lottery, which is res extra commercium, and the petitioner cannot claim protection under Article 19(1)(g)?
2. Whether the inclusion of actionable claim in the definition of goods as given in Section 2(52) of Central Goods and Services Tax Act, 2017 is contrary to the legal meaning of goods and unconstitutional?
3. Whether the Constitution Bench judgment of this Court in Sunrise Associates (supra) in paragraphs 33, 40, 43 and 48 of the judgment has laid down as the proposition of law that lottery is an actionable claim or the observations made in the judgment were only an obiter dicta and not declaration of law?
4. Whether exclusion of lottery, betting and gambling from Item No.6 Schedule III of Central Goods and Services Tax Act, 2017 is hostile discrimination and violative of Article 14 of the Constitution of India?
5. Whether while determining the face value of the lottery tickets for levy of GST, prize money is to be excluded for purposes of levy of GST?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

On the definition of goods:

• The Sale of Goods Act, 1930: Section 2(7) defines goods, excluding actionable claims.
• Government of India Act, 1935: Section 311(2) defines goods including all materials, commodities and articles.
• Article 366(12) of the Constitution of India: Defines goods as including all materials, commodities, and articles.
• Section 2(52) of the Central Goods and Services Tax Act, 2017: Defines goods including actionable claims.

On the definition of actionable claim:

• Section 3 of the Transfer of Property Act, 1882: Defines actionable claim.
• Section 2(1) of the Central Goods and Services Tax Act, 2017: Defines actionable claim as in Section 3 of the Transfer of Property Act, 1882.

On the interpretation of “sale of goods”:

• State of Madras vs. Gannon Dunkerley & Co.(Madras) Ltd., (1959) SCR 329: Interpreted “sale of goods” in Entry 48 of List II of Schedule VII of the Government of India Act, 1935, in its legal sense.
• M/s Gannon Dunkerley and Co. and Others Vs. State of Rajasthan and others, 1993 (1) SCC 364: Examined Article 366(29A) of the Constitution.

On the concept of inclusive definition:

• Reserve Bank of India vs. Peerless General Finance and Investment co.Ltd. And others, 1987(1) SCC 424: Explained the use of inclusive definitions.

On the nature of lottery:

• H. Anraj and Ors. Vs. State of Maharashtra, (1984) 2 SCC 292: A writ petition regarding ban imposed on the sale of lottery tickets.
• H. Anraj Vs. Government of Tamil Nadu, (1986) 1 SCC 414: A writ petition questioning the leviability of sales tax on the sale of lottery tickets.
• Sunrise Associates vs. Govt. of NCT of Delhi and others, (2006) 5 SCC 603: Held that lottery is an actionable claim.
• Vikas Sales Corporation and another vs. Commissioner of Commercial Taxes and another, (1996) 4 SCC 433: Agreed with the decision of H Anaraj.
• Union of India and Ors. Vs. Martin Lottery Agencies Limited, (2009) 12 SCC 209: Considered levy of service tax on lottery tickets and held lottery to be gambling.

On the power of legislature to tax:

• Bhopal Sugar Industries Ltd., M.P. And Anr. Vs. D.P. Dube, Sales Tax Officer and Anr., (1964) 1 SCR 481: Considered the extended definition of “retail sale”.
• Navinchandra Mafatlal Bombay Vs. Commissioner of Income Tax, Bombay City, AIR 1955 SC 58: Held that a word in a Constitution Act must not be construed narrowly.
• Navnitlal C. Javeri Vs. K.K. Sen, Appellate, Assistant Commissioner of Income Tax, (1965) 1 SCR 909: Discussed the constitutionality of Section 12(1B) of the Income Tax Act, 1922.
• Sri Krishna Das Vs. Town Area Committee, Chirgaon, (1990) 3 SCC 645: Observed that courts cannot review the decisions of the legislature on taxation.

On discrimination in taxation:

• Ayurveda Pharmacy and Anr. Vs. State of Tamil Nadu, (1989) 2 SCC 285: Held that there must be a rational basis for discriminating between commodities for taxation.
• State of Uttar Pradesh and Ors. Vs. Deepak Fertilizers & Petrochemical Corporation Ltd., (2007) 10 SCC 342: Laid down the same preposition as in Ayurveda Pharmacy.

On the nature of gambling:

• State of Bombay Vs. R.M.D. Chamarbaugwala and Anr., AIR 1957 SC 699: Considered the nature of activities akin to lottery, betting, and gambling.

[TABLE] of Authorities

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

✓ State of Madras vs. Gannon Dunkerley & Co.(Madras) Ltd., (1959) SCR 329*: The Court distinguished this case, stating that it dealt with the definition of “sale” and not “goods.”

✓ Sunrise Associates vs. Govt. of NCT of Delhi and others, (2006) 5 SCC 603*: The Court relied on this judgment, stating that it had categorically held that lottery is an actionable claim.

✓ State of Bombay Vs. R.M.D. Chamarbaugwala and Anr., AIR 1957 SC 699*: The Court relied on this judgment, stating that it has been held that gambling is res extra commercium.

✓ Union of India and Ors. Vs. Martin Lottery Agencies Limited, (2009) 12 SCC 209*: The Court relied on this judgment, stating that it has been held that lottery is gambling.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following considerations:

• Statutory Interpretation: The Court emphasized that the definition of “goods” under Section 2(52) of the Central Goods and Services Tax Act, 2017, is valid and includes actionable claims, which is in line with the Constitution Bench judgment in Sunrise Associates.
• Legislative Competence: The Court recognized that Parliament has the power to make laws with respect to goods andservices tax under Article 246A of the Constitution, and this power extends to the taxation of lotteries.
• Constitutional Validity: The Court found that the inclusion of actionable claims within the definition of goods is not contrary to the Constitution and that the exclusion of lottery, betting, and gambling from other actionable claims is not discriminatory.
• Precedent: The Court relied heavily on the Constitution Bench judgment in Sunrise Associates, which had already characterized lotteries as actionable claims.
• Taxation Policy: The Court recognized that taxation is a matter of policy and that the legislature has the power to decide which goods and services should be taxed.

Sentiment Analysis:

The overall sentiment of the Court’s judgment is one of upholding the legislative intent and constitutional validity of the GST on lotteries. The Court’s reasoning is logical, consistent, and firmly rooted in statutory interpretation and precedent. There is a clear indication that the Court respected the legislative domain and did not attempt to interfere with it unless there was a clear violation of constitutional principles.

Ratio of Fact to Law:

The case primarily revolved around the interpretation of legal provisions and constitutional principles rather than disputed facts. The ratio of law to fact was quite high. The Court’s analysis focused on the definition of “goods,” the nature of actionable claims, the legislative competence of Parliament, and the constitutional validity of the GST on lotteries.

Decision

The Supreme Court upheld the levy of GST on lotteries, dismissing the petitioner’s claims of unconstitutionality and discrimination. The Court’s decision can be summarized as follows:

• The inclusion of actionable claims in the definition of “goods” under the Central Goods and Services Tax Act, 2017, is valid and constitutional.
• Lotteries are considered actionable claims and thus fall within the ambit of “goods” for GST purposes.
• The exclusion of lottery, betting, and gambling from other actionable claims for GST purposes is not discriminatory and is within the legislative competence of Parliament.
• The GST is validly levied on the face value of lottery tickets, and there is no provision to exclude prize money from the taxable value.

Final Order:

The Supreme Court dismissed the writ petition filed by Skill Lotto Solutions Pvt. Ltd., thereby upholding the imposition of GST on lotteries.

Implications

The Supreme Court’s judgment in Skill Lotto Solutions vs. Union of India has significant implications for the lottery industry and tax policy:

• GST on Lotteries: The judgment definitively establishes that GST can be levied on lotteries, providing clarity and certainty for the tax regime.
• Definition of “Goods”: The ruling affirms that the definition of “goods” under the Central Goods and Services Tax Act, 2017, is inclusive and extends to actionable claims like lotteries.
• Legislative Power: The judgment reinforces the legislative power of the Parliament to tax goods and services, including lotteries.
• Discrimination: The ruling clarifies that the differential treatment of lottery, betting, and gambling for tax purposes is not discriminatory and is based on a reasonable classification.
• Tax Revenue: The judgment ensures that the government can continue to collect GST on lotteries, which is a significant source of revenue.
• Industry Compliance: Lottery operators must comply with the GST regulations and pay tax on the face value of lottery tickets.

Flowchart of the Case

Conclusion

The Supreme Court’s judgment in Skill Lotto Solutions Pvt. Ltd. vs. Union of India & Ors. is a landmark decision that clarifies the legal position on the levy of GST on lotteries. The Court’s ruling upholds the legislative intent behind the GST Act and provides certainty and clarity for the lottery industry and tax authorities. By affirming the definition of “goods” to include actionable claims and upholding the legislative competence of Parliament, the judgment has solidified the legal foundation for the GST regime in India. The Court’s analysis of the issues, based on statutory interpretation and precedent, has set a precedent for future cases involving taxation and constitutional law.

Overall, the judgment establishes that the GST on lotteries is constitutional and not discriminatory, thereby settling a significant legal debate.