Levy of GST on Lottery, Betting and Gambling, Upholds SC

Levy of GST on Lottery, Betting and Gambling, Upholds SC

In a landmark judgment, the Supreme Court upheld the levy of Goods and Services Tax (GST) on lotteries, betting and gambling. The Court ruled this while dismissing a writ petition filed by Skill Loto Solutions Pvt Ltd challenging the levy of GST on lotteries as violative of Articles 14, 19(1) (g), 301 and 304 of the Constitution of India.

Argument put forth by petitioner

The petitioner had filed a writ petition under Article 32 of the Constitution challenging the constitutionality of the levy of GST on lotteries. The petitioner, an authorized agent, for sale and distribution of lotteries organized by State of Punjab has filed this writ petition   impugning the definition of goods under Section 2(52) of Central Goods and Services Tax Act, 2017 and consequential notifications to the extent it levies tax on lotteries. The petitioner seeks declaration that the levy of tax on lottery is discriminatory and 2 violative of Articles 14, 19(1) (g), 301 and 304 of the Constitution of India.

It contented that ‘lottery’ was in the nature of an actionable claim. The definition of ‘goods’ under Article 366(12) of the Constitution include only “materials, commodities and articles” and not “actionable claims”. However, the definition of ‘goods’ under Section 2(52) of the GST Act includes ‘actionable goods’. This is also contrary to the definition of ‘goods’ under the Sale of Goods Act, 1930, which also excludes ‘actionable claims’.

He argued that the statute cannot stipulate a definition which is contrary to the Constitution. It was also submitted that according to Item Number 6 under Schedule III to the Act, 2017 all actionable claims except “lottery, betting and gambling” are treated as neither goods nor supplies. Thus, all actionable claims except ‘lottery, betting and gambling’ have been exempted from GST. This was challenged as discriminatory.

Observation and finding of the Court

  • The Court noted that the definition of goods under Article 366(12) of the Constitution was inclusive and there was no intention to give any restrictive meaning to goods.
  • “The Constitution framers were well aware of the definition of goods as occurring in the Sale of Goods Act, 1930 when the Constitution was enforced. By providing an inclusive definition of goods in Article 366(12), the Constitution framers never intended to give any restrictive meaning of goods,” it added.
  • The Court relied on the Constitution Bench judgment in Sunrise Associates vs. Govt. of NCT of Delhi and others, (2006) 5 SCC 603 wherein lottery was categorized as actionable claim.

“We are of the view that definition of goods under Section 2(52) of the Act, 2017 does not violate any constitutional provision nor it is in conflict with the definition of goods given under Article 366(12). Article 366 clause(12) as observed contains an inclusive definition and the definition given in Section 2(52) of Act, 2017 is not in conflict with definition given in Article 366(12). As noted above the Parliament by the Constitution(One Hundred and First Amendment) Act, 2016 inserted Article 246A. a special provision with respect to goods and services tax. The Parliament was fully empowered to make laws with respect to goods and services tax. Article 246Abegins with non obstante clause that is”Notwithstanding anything contained in Articles 246and 254”, which confers very wide power to make laws. The power to make laws as conferred by Article 246A fully empowers the Parliament to make laws with respect to goods and services tax and expansive definition of goods given in Section 2(52) cannot be said to be not in accord with the constitutional provisions,”

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the judgment said.

  • The Court held the GST Act 2017 was enacted by the Parliament in exercise of power conferred under Article 246Aof the Constitution.
  • The Court held that the inclusion of actionable claim in definition “goods” as given in Section 2(52) of Central Goods and Services Tax Act, 2017 is not contrary to the legal meaning of goods and is neither illegal nor unconstitutional. And rejected the argument that imposing tax only on ‘lottery, betting and gambling’ while exempting other actionable claims was discriminatory.

“Lottery, betting and gambling are well-known concepts and have been in practice in this country since before independence and were regulated and taxed by different legislations. When Act, 2017 defines the goods to include actionable claims and included only three categories of actionable claims, i.e., lottery, betting and gambling for purposes of levy of GST, it cannot be said that there was no rationale for including these three actionable claims for tax purposes. Regulation including taxation in one or other form on the activities namely lottery, betting and gambling has been in existence since last several decades. When the parliament has included above three for purpose of imposing GST and not taxed other actionable claims, it cannot be said that there is no rationale or reason for taxing above three and leaving others.”

  • The Court said that ‘lottery, gambling and betting’ have always been regulated in India in the interests of social welfare, it observed:

“It is a duty of the State to strive to promote the welfare of the people by securing and protecting, as effectively as it may, a social order in which justice, social, economic and political, shall inform all the institutions of the national life. The Constitution Bench in State of Bombay Vs. R.M.D.Chamarbaugwala and Anr. (supra) has clearly stated that Constitution makers who set up an ideal welfare State have never intended to elevate betting and gambling on the level of country’s trade or business or commerce. n this country, the aforesaid were never accorded recognition of trade, business or commerce and were always regulated and taxing the lottery, gambling and betting were with the objective as noted by the Constitution Bench in the case of State of Bombay Vs. R.M.D. Chamarbaugwala and Anr.(supra), we, thus, do not accept the submission of the petitioner that there is any hostile discrimination in taxing the lottery, betting and gambling and not taxing other actionable claims. The rationale to tax the aforesaid is easily comprehensible as noted above. Hence, we do not find any violation of Article 14 in Item No. 6 of Schedule III of the Act, 2017.”

Case Name: Skill Loto Solutions Pvt Ltd v Union of India

Citation: WP(c) No.961 of 2018

Coram: Justices Ashok Bhushan, R Subhash Reddy and MR Shah

[ Levy of GST on Lottery, Betting and Gambling, Upholds SC ]

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