# UNION OF INDIA & ORS v. M/S MARTIN LOTTERY AGENCIES LTD

- **Citation:** [2009] 7 S.C.R. 946
- **Court:** Supreme Court of India
- **Decided:** 2009-05-05
- **Case number:** Civil Appeal No. 3239 of 2009
- **Bench:** S.B. Sinha, Cyriac Joseph
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/union-of-india-ors-v-m-s-martin-lottery-agencies-ltd-26010
- **Pages:** 31

## Headnote

Finance Act, 1994:
Section 65( 105) - Service Tax - Whether sale, promotion
c and marketing of lottery tickets would be exigible to Service
Tax - On a writ petition, High Court held in the negative - On
appeal, Held: By reason of explanation a substantive law may
be introduced - But it will have no retrospective effect - Thus,
Service Tax, if any, would be payable with effect from May,
D 2008 and not with retrospective effect.
Interpretation of Statutes:
Speech of Finance Minister in Parliament - Could be
taken to be a valid tool for interpretation of a statute.
E
Words and Phrases:
'Service' - Meaning of.
In this appeal against the judgment of the Sikkim
High Court, the question involved was as to whether sale,
F promotion and marketing of lottery tickets would be
exigible to Service Tax within the meaning of the
provisions of Section 65(105) of the Finance Act, 1994.
...
Dismissing the appeal, the Court
G
HELD: 1.1 Organizing lottery by the State is tolerated
being an economic activity on its part so as to enable it to
raise revenue. Raising of revenue by the State, by itself . '
cannot amount to rendition of any service. It may be true
that for the purpose of invoking the provisions of taxing
•
H
946
...
UNION OF INDIA & ORS. V.
947
M/S MARTIN LOTTERY AGENCIES LTD.
statute, the morality aspect may not be of much A
consequence but such a question assumes significance
for the purpose of ascertaining as to whether the same
.··amounts to rendition of service within the meaning of
clause (19) of Section 65 of the Finance Act, 1994. [Pata
16] [962-C-E]
B
1.2 Service provided in respect of the matters
envisaged under clause (19) of Section 65 of the Act must
be construed strictly. Before a tax is found to be leviable,
it must come within the domain of legitimate business and/
or trade. The doctrine of res extra Cominercium was c
invoked in the United States of America where keeping in
view the nature of right conferred on its citizens and the
concept of imposition of reasonable restrictions thereon
being absent, it was held that gambling should be frowned ,
upon being opposed to constitutional jurisprudence. 0
While borrowing the said principle in the Indian context,
however, it must be borne in mind that Constitution of India
envisages reasonable restrictions in respect of almost all
the fundamental rights of the citizens. No citizen has an
absolute fundamental right. Whereas the same principle
may apply in Australia but it may not apply to the European E
Countries where gambling and even sale of narcotic drugs
subject to licensing provisions, if any, is permissible. [Para
18] [963-B-E]
1.3 Conceptually business may be carried out in
respect of a property which is capable of being owned as
F
contrasted to those which cannot be. Having regard to
the changing concept of the right of property, which
includes all types of properties capable of being owned
including intellectual property, it is possible to hold that
the restrictions which can be imposed in carrying on G
business in relation thereto must only be reasonable on~ ~ __
within the meaning of Clause (6) of Article 19 of the
Constitution of India. Right of property although no longer
a fundamental right, but, indisputably is a human right.
(Para 18] (963-F-G]
H
948
SUPREME COURT REPORTS
[2009] 7 S.C.R.
A
Gujarat Ambuja Cements Ltd. v. Union of India (2005) 4
SCC 241; H. Anraj v. Government of Tamil Nadu (1986) 1
SCC 414; Yasha Oversees v. Commr. of Sales Tax & Ors.
(2008) 8 SCC 681; The State of Bombay v. R.M.D.
Chamarbaugwala 1957 SCR 874; B.R. Enterprises v. State of
B U.P & Ors. (1999) 9 sec 700; Vimlaben Ajitbhai Patel v.
Vatslaben Ashokbhai Patel and Others (2008) 4 SCC 649;
Karnataka State Financial Corporation v. N. Narasimahaiah
(2008) 5 sec 176; e.S.S Motor Service Tenkari and Ors v
The State of Madras represented by the Secretary to the
c Government of Madras, Home Department and Anr. Al R 1953
Mad 279 - relied on.
Sunrise Associates vs. Govt. of NCT of Delhi & Ors

## Text

_Characters 0–39,976 of 59,396. This is a partial read: ask again with offset=39976 for what follows._

(2009] 7 S.C.R. 946
A
UNION OF INDIA & ORS.
V.
M/S MARTIN LOTTERY AGENCIES LTD.
Civil Appeal No. 3239 of 2009
B
MAY 5, 2009
-
(S.B. SINHA AND CYRIAC JOSEPH, JJ.)
Finance Act, 1994:
Section 65( 105) - Service Tax - Whether sale, promotion
c and marketing of lottery tickets would be exigible to Service
Tax - On a writ petition, High Court held in the negative - On
appeal, Held: By reason of explanation a substantive law may
be introduced - But it will have no retrospective effect - Thus,
Service Tax, if any, would be payable with effect from May,
D 2008 and not with retrospective effect.
Interpretation of Statutes:
Speech of Finance Minister in Parliament - Could be
taken to be a valid tool for interpretation of a statute.
E
Words and Phrases:
'Service' - Meaning of.
In this appeal against the judgment of the Sikkim
High Court, the question involved was as to whether sale,
F promotion and marketing of lottery tickets would be
exigible to Service Tax within the meaning of the
provisions of Section 65(105) of the Finance Act, 1994.
...
Dismissing the appeal, the Court
G
HELD: 1.1 Organizing lottery by the State is tolerated
being an economic activity on its part so as to enable it to
raise revenue. Raising of revenue by the State, by itself . '
cannot amount to rendition of any service. It may be true
that for the purpose of invoking the provisions of taxing
•
H
946
...
UNION OF INDIA & ORS. V.
947
M/S MARTIN LOTTERY AGENCIES LTD.
statute, the morality aspect may not be of much A
consequence but such a question assumes significance
for the purpose of ascertaining as to whether the same
.··amounts to rendition of service within the meaning of
clause (19) of Section 65 of the Finance Act, 1994. [Pata
16] [962-C-E]
B
1.2 Service provided in respect of the matters
envisaged under clause (19) of Section 65 of the Act must
be construed strictly. Before a tax is found to be leviable,
it must come within the domain of legitimate business and/
or trade. The doctrine of res extra Cominercium was c
invoked in the United States of America where keeping in
view the nature of right conferred on its citizens and the
concept of imposition of reasonable restrictions thereon
being absent, it was held that gambling should be frowned ,
upon being opposed to constitutional jurisprudence. 0
While borrowing the said principle in the Indian context,
however, it must be borne in mind that Constitution of India
envisages reasonable restrictions in respect of almost all
the fundamental rights of the citizens. No citizen has an
absolute fundamental right. Whereas the same principle
may apply in Australia but it may not apply to the European E
Countries where gambling and even sale of narcotic drugs
subject to licensing provisions, if any, is permissible. [Para
18] [963-B-E]
1.3 Conceptually business may be carried out in
respect of a property which is capable of being owned as
F
contrasted to those which cannot be. Having regard to
the changing concept of the right of property, which
includes all types of properties capable of being owned
including intellectual property, it is possible to hold that
the restrictions which can be imposed in carrying on G
business in relation thereto must only be reasonable on~ ~ __
within the meaning of Clause (6) of Article 19 of the
Constitution of India. Right of property although no longer
a fundamental right, but, indisputably is a human right.
(Para 18] (963-F-G]
H
948
SUPREME COURT REPORTS
[2009] 7 S.C.R.
A
Gujarat Ambuja Cements Ltd. v. Union of India (2005) 4
SCC 241; H. Anraj v. Government of Tamil Nadu (1986) 1
SCC 414; Yasha Oversees v. Commr. of Sales Tax & Ors.
(2008) 8 SCC 681; The State of Bombay v. R.M.D.
Chamarbaugwala 1957 SCR 874; B.R. Enterprises v. State of
B U.P & Ors. (1999) 9 sec 700; Vimlaben Ajitbhai Patel v.
Vatslaben Ashokbhai Patel and Others (2008) 4 SCC 649;
Karnataka State Financial Corporation v. N. Narasimahaiah
(2008) 5 sec 176; e.S.S Motor Service Tenkari and Ors v
The State of Madras represented by the Secretary to the
c Government of Madras, Home Department and Anr. Al R 1953
Mad 279 - relied on.
Sunrise Associates vs. Govt. of NCT of Delhi & Ors. (2006)
5 SCC 603 and Federation and Association of Hotels and
Restaurants Association of India v. Union of India (1989) 3
D SCC 634 - referred to.
California v. Central Pacific R. Co. (1888) 32 Law Ed 150
ti
- referred to.
2.,The speech of the Hon'ble the Finance Minister
E would have been relevant for the purpose of opining as
to whether the court independently would have arrived
at a conclusion that organizing lottery would amount to
rendition of service but not otherwise. As it is not possible
for this Court to arrive at the said conclusion, there is no
F other option but to hold that by inser.ting the explanation
appended to clause (19) of Section 65 of the Act, a new
concept of imposition of tax has been brought in. The
Parliament may be entitled to do so. It would be entitled
to raise a legal fiction, but when a new type of tax is
G introduced or a new concept of tax is introduced so as to
widen the net, it should not be construed to have a retrospective operation on the premise that it is clarificatory
· '
or declaratory in nature. [Para 27] [969-D-F]
K.P. Varghese v. Commissioner of Income-tax,
H Ernakulam & Anr. (1981) 4 SCC 173 and Commissioner of
UNION OF INDIA & ORS. V.
949
M/S MARTIN LOTTERY AGENCIES LTD.
i
Wealth Tax, Punjab, J & K, Chandigarh, Patiala v. Yuvraj A
Amrinder Singh and Ors. (1985) 4 SCC 608 - relied on.
,<
'"'
3. It is well settled that the statute must be interpreted
keeping in view the words used in it. [Para 29) [970-D]
Virtual Soft Systems Ltd. v. Commissioner of Income Tax,
B
Delhi-I (2007) 9 SCC 665 - referred to.
4.1 The question as to whether a Subordinate
Legislation or a Parliamentary Statute would be held to
be clarificatory or declaratory or not would indisputably c
depend upon the nature thereof as also the object it seeks
to achieve. If two views are not possible, resort to
clarification and/or declaration may not be permissible.
[Para 31) [971-E-F]
4.2 By reason of an explanation, a substantive law D
may also be introduced. If a substantive law is introduced,
it will have no retrospective effect. [Para 36) [975-F]
4.3 The notice issued to the assessee by the appellant
has, thus, rightly been held to be liable to be set aside.
E
Subject to the constitutionality of the Act, service tax, if
,,
any, would be payable only with effect from May, 2008 and
not with retrospective effect. [Para 36) [975-G-H]
4.4 In a case of this nature, the Court must be satisfied
that the Parliament did not intend to introduce a F
substantive change in the law. For that purpose, the
expressions like 'for the removal of doubts' are not
conclusive. The said expressions appear to have been
used under assumption that organizing games of chance
would be rendition of service. This Court in this case is G
;
.,
not concerned as to whether it was constitutiolially
permissible for the Parliament to do so as it is not called
upo·n to determine the said question but for the present,
purpose, it would be. suffice to hold that the expl!'lnation
is not clarificatory or declaratory in nature. Thus, the High
H
_.·
950
SUPREME COURT REPORTS
[2009] 7 S.C.R.
A Court judgment albeit for different reasons warrants no
interference. [Paras 37, 38] [976-A-C]
Commissioner of Income Tax, l?iombey & Ors. v. Podar -
Cement Pvt. Ltd. & Ors. (1997) 5 SCC 482; Keshav/a/ Jethalal
B
Shah v. Mohan/a/ Bhagwandas and Anr. (1968) 3 SCR 623;
WPl.L. Ltd., Ghaziabad v. Commissioner of Central Excise,
Meerut, UP. (2005) 3 SCC 73; Virtual Soft Systems Ltd. v.
Commissioner of Income Tax, Delhi-I (2007) 9 SCC 665;
Commissioner of Income Tax-I, Ahmedabad v. Gold Coin
Health Foods Pvt. Ltd. (2008) 11 SCALE 497; SEDCO Forex
c International Drill. Ina. & Ors. v. Commissioner of Income, Tax,
Dehradun & Anr. (2005) 12 SCC 717; CIT v. S. G Pgnatal (1980)
)----
124 /TR 392 (Guj) and CIT v. S.R. Patton (1992) 193 ITR 49
(Ker) - referred to.
'
D
"Benion's Statutory Interpretation" and "G.P. Singh's
Principles of Statutory Interpretation" - referred to.
..
Case Law Reference
c2006) 5 sec 603
referred to
Para 6
E
(1989) 3 ·sec 634
referred to
Para 6
c2005) 4 sec 241
relied on
Para 6
(1986) 1 sec 414
relied on
Para 12
c2008) 8 sec 681
relied on
Para 12
F
1957 SCR 874
relied on
Para 14
(1999) 9 sec 100
relied on
Para 14
c2008) 4 sec 649
relied on
Para 18
G
c2008) 5 sec 176
relied on
Para 18
AIR 1953 Mad 279
relied on
Para 18
-
(1888) 32 Law Ed 150
referred to
Para 18
H
(1981) 4 sec 113
relied on
Para 28
UNION OF INDIA & ORS. V.
951
M/S MARTIN LOTTERY AGENCIES LTD.
(1985) 4 sec 608
(2001) 9 sec 665
(1997) 5 sec 482
(1968) 3 SCR 623
(2005) 3 sec 73
(2008) 11 SCALE 497
(2005) 12 sec 111
relied on
referred to
referred to
referred to
Para 28
Para 29
Para 30--
Para 30
referred to
Para 30
referred to
Para 32
referred to
_Para 33
(1980) 124 ITR 392 (Guj) referred to
(1992) 193 ITR 49 (Ker)
referred to
Para 34
Para 35
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 3239
Of 2009
''
~
From the Judgment and Or~er dated 18.09.20070f the
High Court of Sikkim at Gangtok in Writ Petition (C) No. 19 of·
2007
Mohan Parasaran, ASG, Naveen Prakash, D.L.
A
B
c
D
C,hidananda, Gaurav Dhingra, S. N. Terdal (for B. V. Balaram
E
Das), with him for the Appellant(s).
Harish N. Salve, A. R. Madhav Rao, Vivek Sharma, Sujata,
Kamaldeep, M.P. Devanath, with him for the Respondent(s).
The Judgment of the Court was delivered by
S.B. SINHA, J.
1. Leave granted.
F
2. Whether sale, promotion and marketing of lottery tickets
would be exigible tq 'Service Tax' within the meaning of the G
;
.,
provisions of Section '65(105) of the Finance Act, 199.4
(hereinafter called and referred to for the sake of brevity as 'the
Act') is the question involved in this appeal which arises from a
judgment and order dated 18.9.2007 passed by the High Court
of Sikkim in Writ Petition (C) No. 19 of 2007.
H
952
SUPREME COURT REPORTS
(2009] 7 S.C.R.
'
A
3. Respondents are agents of the State of Sikkim. The
State Governm·ent floated "schemes" whereby the total number
~
of tickets therefor was prescribed. In terms of the said schemes,
the respondent purchases all lottery tickets in bulk form on "all
sold basis". It pays Rs. 70 per ticket for the face value of Rs.100/
B -. In turn, it sells the ticket to its principal stockists on "outright"
and "all sold basis": It makes a profit out of the margin out of the
difference between the amounts received from the principal
stockists and the amounts paid to the State Government. The
principal stockists in turn sell the tickets to the sub-stockist and
c who in turn sell to the agents. The retailers purchase tickets from
the agents and in turn sell the same to the ultimate participants
of the draw.
4. Indisputably, the entire transaction is governed by the
Lottery (Regulation) Act, 1998. It is neither in doubt nor in dispute
D that having regard to the circular letter issued by Commissioner
(Service Tax), Ministry of Finance, CBEC dated 14.01.2007,
~
the nature of transactions between the distributor and the State
, Government do not constitute a sale.
E
However, it was concluded that the activities of the
distributor are that of promotion or marketing of lottery tickets
for their client (i.e. the State Governments) and, thus, would be
exigible to service tax under the heading 'business auxiliary
service'.
F
Pursuant to and/or in furtherance of the said opinion of the
Board, the Superintendent of Central Excise, Gangtok Range;
Gangtok by a letter dated 30.04.2007 directed the respondent
to obtain registration and pay service tax under the heading
'business auxiliary service' in terms of the provisions of the said
G Act.
5. The legality and/or validity of the said notice was
r
..
questioned before the High Court of Sikkim by the respondent
byway of a Writ Petition. By an order dated 13.8.2007, the Chief
Justice of the said High Court while declining to grant an interim
H order made certain observations to the effect that the activities
UNION OF INDIA & ORS. V. MIS MARTIN LOTIERY
953
AGENCIES LTD. [S.B. SINHA, J.]
1
undertaken by respondent cannot but be promotion or marketing,
A
in the following terms:
"(sic) can be sold in the market for that face value, is itself
a promotional or marketing service. The contract between
a principal producer and its large distributor or promotional
B
distributor can have a lot of flexibility. It will all depend on
the business negotiations b.y the two parties, as to whether
the goods are being taken by the distributor as an agent,
and retained as such, or whether the goods will be purchased
outright by the distributor from the manufacturer, at a reduced
price, the distributor thereafter taking all responsibility for the c
goods purchased, in return for, or inconsideration of, the
reducing in the wholesale price of goods.
If, we repeat if, the writ petitioner is a distributor or a selling
agent, then there is no problem, notwithstanding section D
4(c) of the 1998 Act, of the writ petitioner reselling the
lottery tickets in the open market even upto the full face
'.,
value of Rs. 100/-, or for a lesser price but above Rs.70/
-, even though it bought the tickets itself for Rs.70/-. Is this
a promotion of the lottery marketing of lottery tickets E
produced or provided by the State? If it is not, then what
is the difference between a person buying lottery tickets
of face value of Rs.100/- at Rs.100/- from the State
Government directly, and a person who is buying it at a
1
"
reduced price? Is the reduced price of Rs.30/- in relation
to goods, originally belonging to the State Government, a
F
reduction for the purpose of marketing and further sale,
and is it for the purpose of marketing, which the true and
core business activity of the writ petitioner? Is the business
violability of the writ petitioner dependent only on the
middleman succeeding in getting a market for the original G
>
..,;
goods, and is the margin of 30% sufficient to cover this
type of business venture?
These questions might merely be asked today but need
not be answered today without hearing parties fully.
H
954
A
B
c
SUPREME COURT REPORTS
[2009] 7 S.C.R.
I am of the opinion that on a balance of circumstances it
appears that the essence of activity, properly so called,
cannot but be promotion or marketing.
Order and observations, however worded, are without
prejudice to the rights and contentions of the parties. There
will be no interim order. Appearance of parties before the
Department will take place and decisions might be given
and even levy might be made. However, decisions given
will ultimately abide by the result of the writ. Since both the
parties are also solver, no interim order is called for.
Returnable on 17.8.2007 when further orders might be
prayed for by either party."
The said writ petition was posted for hearing on 18.9.2007
and by reason of an order of the said date, the writ petition was
D allowed, directing:
E
F
G
H
"Affidavits have not been called for although the leaned
Advocate General asked for time. Here the learned
Advocate General is appearing as Assistant Solicitor
General. Time to file affidavit was refused by me since the
issue is one of pure law. This order is to be read as a
sequel to the order already passed by this Court on
13.8.2007. The basic facts are set out there. The
arguments this time centered round whether lottery tickets
are goods or not. The statutory provisions which are
material in this regard are extracted in my earlier order.
On the authority of the Constitution Bench of the Supreme
Court which delivered its judgment in the Sunrise
Associates Case (2006) 5 SCC 603 lottery tickets have
to be held to be actionable claims. As such those would
not be goods within the meaning of the definition clause
in the Sale of Goods Act. If the lottery tickets are not goods,
the writ petitioners cannot be said to be rendering any
service in relation to the promotion of their client's goods,
or marketing of their client's goods, or sale of their client's
goods.
,.
UNION OF INDIA & ORS. V MIS MARTIN LOTTERY
955
AGENCIES LTD. [S.B. SINHA, J]
The writ petition succeeds on this simple point. The A
impugned notice dated 30.4.2007 (Annexure P-3 of the
writ petition) is accordingly quashed. There will be no order
as to costs."
6. Mr. Mohan Parasaran, learned Additional Solicitor
B
General of India appearing for the appellant, would submit:
(i)
The High Court committed a serious error in passing
the impugned judgment insofar as it failed to take
into consideration that the notice had been issued in
terms of sub-clause (ii) of Section 65(19) of the Act c
and not sub-clause (i) thereof.
(ii)
As United Nations-Central Product Classification
(UN-CPC) Heading 96920 contains 'gambling and
betting' seryices and covers 'organization of lotteries'
and, thus, the activities of organizing lotteries being . D
internationally recognized, should be considered as
a service and, thus, the High Court committed a
serious illegality in relying upon the decision of this
Court in Sunrise Associates vs. Govt. of NCT of
Delhi & Ors. reported in (2006) 5 SCC 603.
E
(iii) Explanation appended to Section 65 (19) being
clarificatory and/or declaratory in nature must be held
to have a retrospective operation.
~·
(iv)
Entries 34 and 62 of List II of the Seventh Schedule F
of the Constitution of India does not create any kind
of fetter on the powers of the Parli~ment to impose
service tax on the assessee who provide the service
of promotion and marketing of lotteries. The
aforementioned two entries empower the State G
Legislature to impose tax on betting and. gambling
> ..,
and other luxuries. In the instant case, however, what
is sought to be taxed under sub-clause (ii) of clause
(19) of Section 65 of the Finance Act, 1994 is the
services rendered by an assessee to its client in
H
956
SUPREME COURT REPORTS
[2009] 7 S.C.R.
A
promoting and marketing of lotteries organized by
the State Government and not anything else.
(v)
A transaction may involve two taxable events in its
different aspects, as has been held by the Constitution
B
Bench of this Court in Federation and Association of
Hotels and Restaurants Association of India v. Union
of lndia_reported in [(1989) 3 sec 634], in terms
whereof whereas, on the one hand, service tax can
be levied on the services provided by the respondent
to the Government of Sikkim in promoting and
c
marketing of lotteries; the State Government is also
empowered to impose tax on the organization and
conduct of lotteries in the State in exercise of its
powers under Entries 34 and 62 of the List II of the
Seventh Schedule read with Articles 245 and 246 of
D
the Constitution of India, despite the fact that the
same transaction creates two taxable events, namely,
the organization of the lotteries itself and secondly
the services rendered in the promotion and marketing
of lotteries.
E
(vi)
In view of a recent decision of this Court in Gujarat
Ambuja Cements Ltd. v. Union of India reported in
(2005) 4 sec 241, tax was not sought to be imposed
on 'betting' or 'gambling' or 'entertainments' or
'amusements' as provided in the Entries 34 and 62
F
of List 11 of the Seventh Schedule to the Constitution
of India, but on the services rendered in respect
thereof.
7. Mr. Harish N. Salve, learned Senior Counsel appearing
G on behalf of the respondent, on the other hand, urged :
H
(i)
Even UN-CPC or the classification provided for
therein has no bearing to an Act enacted by the
Parliament of India. Whereas UN-CPC regards lottery
tickets as goods; the Indian laws do not. In any event,
lottery has been. brought within the concept of 'service'
1
·~
UNION OF INDIA & ORS. V MIS MARTIN LOTTERY
957
AGENCIES LTD. [S.S. SINHA, J]
1
treating it to be goods, which is against the purport A
of the said term; having been held by this Court in
-..
Sunrise Associates (Supra) as merely an 'actionable
claim'.
(ii)
As conduct of lotteries has been held by this Court
B
to be res-extra commercium, no service can be said
to be rendered by the State to the society at large
and, thus, the provisions of the Act will have no
application in the instant case.
(iii) In view of the decision of this Court in Sunrise c
Associates (supra), lottery tickets being actionable
claims and not goods, the relevant clause attracted
in this case would be sub-clause (i) of clause (19) of
Section 65 and not sub-clause (ii) as gambling cannot
be equated with 'service'.
D
...
(iv)
Respondent has merely been purchasing lottery
tickets in bulk and re-selling the same to the principal
stockists; earning a margin of profit from such
transactions and, in that view of the matter, rendition
of any kind of service by the State to it does not arise. E
(v)
In any event, explanation appended to Section 65(19)
having only a prospective operation, service tax, if
any, can be levied only with effect from 16.5.2008
~.
and not for a period prior thereto.
F
8. Before adverting to the rival contentions raised before
us by the learned counsel for the parties, we may notice the
relevant provisions of the Finance Act, 1994 (The Act).
Chapter V of the Act provides for levy of service tax. It is
levied on "taxable services" as defined in Section 65(105) G
> --i
thereof. Section 66 is the charging section and Section 68
provides for payment of service tax.
Sub-clauses (i} and (ii) of Section 65(19) which are
relevant for our purpose, read as under:-
H
958
SUPREME COURT REPORTS
[2009] 7 S.C.R.
A
"Section 65(19) "business auxiliary service" means any
service in relation to,-
(i)
promotion or marketing or sale of goods produced or
provided by or belonging to the client; or
B
(ii) promotion or marketing of service provided by the
client; or''
The term "business auxiliary service" was inserted in the
Act by Finance Act, 2003 which came into force on 01.07.2003.
The term "business auxiliary service" includes services as a
C commission agent, but does not include any information
technology service or any activity that amounts to "manufacture"
within the meaning of clause (f) of Section 2 of the Central Excise
~.1~.
~
D
Clause (zzb) of Section 65( 105) of the Act defines "taxable
service" to mean any service provided to a client, by a
,..
commercial concern in relation to business auxiliary service.
"Goods" has been defined in Section 65(50), in the
following terms:
E
"Section 65(50) "goods" has the meaning assigned to it
in clause (7) of section 2 of the Sale of Goods Act, 1930."
Section 2(7) of the Sale of Goods Act, 1930 defines
"goods" to mean :
,. ~
F
"Goods" means every kind of movable property other than
actionable claims and money; and includes stock and
shares, growing crops, grass, and things attached to or
forming part of the land which are agreed to be severed
before sale or under the contract of sale."
G
9. After the Special Leave Petition was filed in this Court,
'
the Parliament by Finance Act, 2008 inserted an explanation in
r
sub-clause (ii) of Section 65(19), which came into force on or
about 16.5.2008 and reads as under :
H
"Explanation-For the removal of doubts, it is hereby
f
'
UNION OF INDIA & ORS. V. M/S MARTIN LOTIERY
959
.;
AGENCIES LTD. [S.S. SINHA, J.]
-(
..
declared that for the purposes of this sub-clause, "service A
I
1..
in relation to promotion or marketing of service provided
by the client" includes any service provided in relation to

promotion or marketing of games of chance, organized,
\
conducted or promoted by the client, in whatever form or
\
""
by whatever name called, whether or not conducted online,
B
including lottery, lotto, bingo;"
Section 65A which was inserted by Finance Act, 2003
•
provides for classification of taxable services. Section 66
provides for the charge of service tax.
c
10. The core question which arises for our consideration
is as to whether the explanation appended to sub-clause (ii) of
Section 65(19) is clarificatory or declaratory in nature so as to
be construed having retrospective effect and retroactive
operation.
D
...
Sub-clause (i) of clause (19) of Section 65 of the Act refers
' ·'
to 'goods~. What would come within the purview of the definition
of 'goods' must be consJrued having regard to the provisions of
the Sale of Goods Act, 1930 in view of its definition contained
in Section 65(50) of the Act.
E
11. This takes us to another question as regards the source
of power of the State to conduct a business. Conduct of business
by a State is permissible, inter alia, in terms of Article 298 of the
-,.
Constitution of India. If it is not otherwise prohibited, the State in
exercise of its executive power contained in Article 162 of the
F
Constitution of India may also have the power to conduct a trade
or business.
12. For invoking the provisions of Chapter V of the 1994
Act, the basic question which is required to be posed and
G
answered is as to whether the lottery tickets are 'goods' within
.I '
the meaning of Sale of Goods Act. It is evidently not.
A Constitution Bench of this Court in Sunrise Associates
(supra) held to be so. H. Anraj v. Government of Tamil Nadu
reported in [(1986) 1sec414] was overruled opining that sale H
960
SUPREME COURT REPORTS
[2009] 7 S.C.R.
A of lottery tickets does not involve sale of goods and that at the
t
highest stage, transfer of it would amount to transfer of an
actionable claim.
In Yasha Oversees v. Commr. of Sales Tax & Ors. [(2008)
B 8 SCC 681], Sunrise Associates (supra) was distinguished,
stating:
"37. The decision in Sunrise makes two very significant
points and to us it appears that the decision mainly turns
on those two points. The first is with regard to the two
c
different meanings of 'property', as highlighted in paragraph
35 of the judgment and the second is with regard to the
distinction between interests in goods and a contract as
highlighted in paragraph 43 of the judgment. In paragraph
35 of the decision the court explained that the word
D
'property' occurring both in the definitions of 'goods' and
'sale' carries different meanings. In the definition of 'goods'
,
the word 'property' is used to mean the subject matter of
' -
ownership, that is to say, the thing itself. In the definition of
'sale' the same word is used to mean the nature of interests
E
in goods, that is, title or ownership.
38. In paragraphs 42 and 43 of the decision, the court
examined the nature of a ticket and by giving illustrations
of a railway ticket, a ticket to see a cinema or a
pawnbroker's ticket pointed out that the tickets were
normally evidence of and in some cases the contract
'· -
F
between the buyer of the ticket and its seller.· Being a
contract or evidence of a contract, naturally a ticket can
not be property either as a thing (of value) in itself or title
or ownership to anything. It, therefore, followed that the
G
sale of lottery ticket did not involve transfer of 'property'
either in the sense of the thing itself (goods) or in the
sense of title or ownership (sale).
'l
39. On purchasing a lottery ticket one merely gets a claim
to a conditional interest in the prize money that is not in the
H
purchaser's possession and the right would, therefore,
UNION OF INDIA & ORS. V. M/S MARTIN LOTIERY
961
AGENCIES LTD. [S.B. SINHA, J.]
'
squarely fall within the definition of actionable claim. The A
Constitution Bench decision in Sunrise further held that
Anraj wrongly split up the right accruing to the purchaser
of a lottery ticket. The right was one and indivisible. But
even assuming the right to participate in the draw Page
2519 to be a separate right there would still be no sale of B
-~
goods within the meaning of sales tax laws because the
...
draw itself could not be any movable property and the
~
participation in the draw was only with the obj~ct to win the
..
prize. The transfer of the right would thus be of a conditional
beneficial interest in movable property that is not in c
possession, in other words, once again an actionable
claim."
13. In the aforementioned, backdrop, it is necessary to
consider the submissions of th~ learned Additional Solicitor
General that clauses (1), (2), (8), (10), (16), (18), (25), (29), (36), D
(39) and (40) of the agreement entered into by and between the
State and respondent shows that it is not a case involving
simpliciter sale of goods but in effect and substance respondent
was rendering service in relation to promotion or marketing of
service provided by the State.
E
14. This gives rise to a question, i.e., Does the State in
organizing lottery render any service and, if so, to whom.
~ f
The learned Additional Solicitor General submits that
service is being rendered to the general public as revenue is
F
generated therefrom. We fail to persuade ourselves to agree
with the aforementioned submission. The law, as it stands today
(although it is possible that this Court in future may take a
different view), recognizes lottery to be gambling. Gambling is
..
res extra commercium as has been held by this Court in The
G
..... 1.., State of Bombay v. R.M.D. Chamarbaugwala [1957 SCR 874]
and B.R. Enterprises v. State of UP & Ors. [(1999) 9 SCC
700].
15. Contention of Mr. Salve is that where the State involves
itself in an illegal activity, it cannot render a service as dealing
H
962
SUPREME COURT REPORTS
[2009] 7 S.C.R.
A
in lottery is illegal being res extra commercium, no services t
can be rendered. We, as at present advised, do not intend to
go into the said issue which is a complex one, in view of the fact
that in this case we are primarily required to consider the effect
of the explanation appended to clause (19) of Section 65 of the
B Act. It is also not otherwise necessary to be determined.
We must, however, proceed to determine the said question
~ .
keeping in view the aforementioned decisions of this.Court that
holding of lottery being gambling comes within the purview of
the doctrine of res extra commercium.
c
16. Organizing lottery by the State is tolerated being an
economic activity on its part so as to enable it to raise revenue.
Raising of revenue by the State, in our opinion, by itself cannot
amount to rendition of any service. It may be true that for the
D purpose of invoking the provisions of taxing statute, the morality
aspect may not be of much consequence but such a question
assumes significance for the purpose of ascertaining as to
whether the same amounts to rendition of service within the
meaning of the aforementioned sub-clause. The word 'service'
E
has not been defined in the Act. Its dictionary or etymological
meaning may or may not be appropriate. We would, however,
notice its dictionary meaning :
"Work done or duty performed for another or others; a
serving; as, professional services, repair service, a life ' ~
F
devoted to public service.
An activity carried on to provide people with the use of
something, as electric power, water, transportation, mail
delivery, telephones, etc.
t.
G
Anything useful, as maintenance, supplies, installation,
..
repairs, etc., provided by a dealer or manufacturer for
people who have bought things from him."
.... "'..
17. While the State raises its revenue by controlling dealing
in liquor and/or by transferring its privilege to manufacture,
H distribute, sale etc., as envisaged under Entry 8 of List 11 of the
UNION OF INDIA & ORS. V. MIS MARTIN LOTTERY
963
AGENCIES LTD. [S.B. SINHA, J]
.. I
Seventh Schedule of the Constitution of India, thereby it does A
not render any service to the society. Service tax purports to
-{
impose tax on services on two grounds (1) service provided to
'
a consumer and (2) service provided to a service provider.
18. Service provided in respect of the matters envisaged
B
under clause (19) of Section 65 of the Act must be construed
strictly. Before a tax is found to be leviable, it must come within
the domain of legitimate business and/or trade. The doctrine of
•
res extra Commercium was invoked in the United States of
,.
America where keeping in view the nature of right conferred on
its citizens and the concept of imposition of reasonable c
restrictions thereon being absent, it was held that gambling
should be frowned upon being opposed to constitutional
jurisprudence. While borrowing the said principle in the Indian
context, however, it must be borne in mind that Constitution of
India envisages reasonable restrictions in respect of almost all D
the fundamental rights of the citizens. No citizen has an absolute
fundamental right. Whereas the same principle may apply in
Australia but it may not apply to the European Countries where
gambling and even sale of narcotic drugs subject to licensing
provisions, if any, is permissible.
E
The concept of res extra commercium may in future be
required to be considered afresh having regard to its origin to
·•
Roman Law as also the concept thereof. Conceptually bus,iness
"
may be carried out in respect of a property which is capable of
being owned as contrasted to those which cannot be. Having
F
regard to the changing concept of the right of property, which
includes .all types of properties capable of being owned including
intellectual property, it is possible to hold that the restrictions
which can be imposed in carrying on business in relation thereto
must only be reasonable one within the meaning of Clause (6) G
..... 4
of Article 19 of the Constitution of India. Right of property although
no longer a fundamental right, but, indisputably is a human right.
[See Vimlaben Ajitbhai Patel v. Vatslaben Ashokbhai Patel
and Others (2008) 4 SCC 649 and Karnataka State Financial
Corporation v. N. Narasimahaiah (2008) 5 SCC 176].
H
964
SUPREME COURT REPORTS
[2009] 7 S.C.R.
A
We may notice that the doctrine of 'franchise' or 'exclusive
\
privilege' has been mentioned in C. S. S Motor Service Tenkari
and Ors v The State of Madras represented by the Secretary
-
· to the Government of Madras, Home Department and Anr. [AIR
1953 Mad 279]. Therein the connotation of the word "franchise"
B was noticed from California v. Central Pacific R. Co. [(1888)
32 Law Ed 150] in the following terms:
"What is a franchise? Under the English Law, Blackstone
defines it as 'a royal privilege, or branch of the King's
prerogative subsisting in the hands of a subject.' A
c
franchise is a right, privilege or power, of public concern,
which ought not to be exercised by private individuals at
their mere will and pleasure but should be reserved for
public control and administration either by the Government
directly or by public agents acting under such conditions
D
and regulations as the Government may impose as the
public interest and for the public security."
The doctrine of franchise, thus, would require a thorough
relook in view of the change in its concept, as we are governed
E
by the Constitution of India. But this is n.ot the case where we
have an occasion to do so.
19. Lottery has been brought within the purview of National
Industrial Classification to which we may now advert to. A
foreword to the Industrial Classification, relevant for our purpose,
•
F reads as under :
"A standardized system of classification of economic
activities is essential for meaningful collection of data relating
to such activities. This not only ensures comparability ofthe data
collected within the country from various sources by different
G agencies but also with the rest of the world. In India, the National
Industrial Classification (NIC) is the standard classification
\.- .. '
followed for classifying economic activities. The NIC is prepared
to suit the Indian conditions and follows the principles and
procedures laid down in the United Nations' International
H Standard Industrial Classification (ISIC). It is a constant
UNION OF INDIA & ORS. V M/S MARTIN LOTIERY
965
AGENCIES LTD. [S.B. SINHA, J.]
J
endeavour of the Ministry of Statistics and Programme A
Implementation, charged as it is with the responsibility for setting
standards for collection, compilation and dissemination of
statistical data in India, to establish classification systems as
well as updating existing ones. This is necessary to keep pace
with the changes in the organization and structure of industries B
besides accounting foremerging economic activities. The NIC2004 is the revised version of the earlier classification standard
f
issued in 1998 called the NIC-1998, which was based on !SIC-
~
1990 Rev.3."
20. Lotteries come within the purview of Group 924 class c
924(9) and sub-class 924(9)(0) which is in the following terms :
"Other recreational activities includes fairs and shows of
.
a recreational nature; management and operation of
lotteries (bulk and retail sale of lottery tickets are included D
under wholesale and retail sale respectively); gambling
..
and betting activities; activities of casinos; booking agency
activities in connection with theatrical productions or other
entertainment attractions, recreational fishing and other
recreational activities n.e.c."
E
It also comes within the purview of Section 4 classifying
other community, social and personal service activities.
21. If it is brought within the purview of the terms
'entertainment' or 'amusement' as provided for in Entries 34
and 62 of List II of the Seventh Schedule of the Constitution of F
India, it may come within the purview of service. It is, however,
contended that what is being taxed is the services rendered in
respect thereof. Services can be rendered in respeCt of
activities of the State if they are permissible in terms of subclause (ii) of Clause (19) of Section 65 of the Act and the State G
J4
itself has been rendering services and not otherwise. While we
say so, we are not unmindful of the. fact that in terms of the
agreement, the respondent not only distributes the lottery tickets
printed by the State but also distributes prizes worth less than
Rs.5,000/-. It issues an advertisement. It has a right to be
H
966
SUPREME COURT REPORTS
[2009] 7 S.C.R.
A consulted in respect of design of a lottery ticket. It may also
\.-
have a say in the matter of arranging for the lottery. But we are
not sure as to how service element of the entire transaction is to
• •
be ascertained.
B
22. Keeping in view the aforementioned backdrop, it has
to be determined as to whether the 'explanation' is declaratory
or clarificatory in nature.
23. Clause 19 was inserted in Section 65 of the Act in the
year 2003. The notice dated 30.4.2007 shows that according
"'
c to the authorities clause (i) was attracted and not clause (ii) of
the said provision. The Board issued a clarification on 17 .1.2007
which is in the following terms:
"Decision : Commissioner (ST) explained the issue of
service tax liability on promotion, marketing, distribution
D
of paper lottery. Under the contractual arrangement, the
State Government print lottery tickets and deliver them to
distributor. The distributor is free to publicize for promotion,
•
marketing of the lottery tickets received and distribute the
same through sub-distributors. The State Governments
E
do not receive back the unsold lottery tickets and the prizes,
if any, on such unsold tickets could be collected by the
distributor. The draws are held by the State Governments.
Board noted that the Lotteries (Regulation) Act, 1998,
governs the activity of organizing, conducting or promoting
~ •
F
a lottery. As per sub-section (c) of Section 4, 'the State
Government shall sell the tickets either itself or through
distributors or selling agent'. This provision thus forbids
resale of tickets that have been sold by the State
Government. Accordingly, the nature of transaction between
G
the State Government and distributor is not in the nature
of sales. The activities of the distributor are that of
" .·,.
promotion or marketing of lottery tickets for their clients
i.e. the State Governments. Hence, Board decided that
the services of distributor fall under the 'business auxiliary
H
service' and, therefore, be chargeable to service tax.