# Union of India & Others v. Future Gaming Solutions Pvt. Ltd. & Another Etc

- **Citation:** 2025 INSC 181
- **Court:** Supreme Court of India
- **Decided:** 2025-02-11
- **Case number:** Civil Appeal Nos. 9506-9507 of 2013
- **Bench:** B.V. Nagarathna, Nongmeikapam Kotiswar Singh
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/union-of-india-others-v-future-gaming-solutions-pvt-ltd-another-etc-38782
- **Pages:** 80

## Headnote

Matter pertains to the correctness of the judgments of the High
Court setting aside various amendments made to the Finance
Act, 1994; and whether sole distributor/purchaser of the lottery
tickets is liable to pay service tax on the sale of paper and online
lottery tickets.
Headnotes†
Finance Act, 1994 - ss.65(19), 65(105)(zzzzn), 65B(1), 65B(34),
65B(44), 65B(51), 66B, 66D(i), 66F, 65B(31A), 67 - Various
amendment to the Finance Act, 1994, time to time - Sale of
lottery tickets - Levy of service tax - Government of Sikkim
and lottery distributors, nature of relationship-principal and
principal or principal and agent - Respondents-assessees
engaged in the business of the sale of paper and online lottery
tickets organised by the Government of Sikkim and entered
into agreements with the State - Pursuant to amendment by
the Finance Act, 2003, inclusion of new category of taxable
services-"Business Auxiliary Service" - Issuance of notices
to the respondents by the Service Tax Department, requiring
them to register for payment of service tax on the activity
which the assessees were/are carrying - Series of litigations
wherein the respondents has been challenging the provisions
levying service tax introduced through various amendments
to the Finance Act from 2010-2016, and the High Court has
allowed the petitions - Interference:
Held: In view of the Finance Act, 1994, and the amendments
made, interference with the orders passed by the High Court not
called for - At each stage, the amendments made to the Finance
* Author
[2025] 2 S.C.R.
757
Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.
Act, 1994, in order to impose service tax on the sole distributor/
purchaser of the lottery tickets has failed - There being no agency
and no service rendered by the respondents-assessees as an
agent to the Government of Sikkim, service tax is not leviable
on the transactions between the purchaser of the lottery ticketsrespondents and the Government of Sikkim - Having regard to
the terms and conditions of the agreement entered into between
the government and the respondents, including the nomenclature
used to describe the respondents, the respondents were not an
agent of the State Government but purchased the lottery tickets
at own risk for the purpose of selling it through stockists, etc. and
unsold lottery tickets had to be returned to the State Government
in order to avoid misuse of the same - Thus, the relationship
was one between a principal and principal and not one between
principal and agent - Amendment was made to s.65(105) by
insertion of clause (zzzzn) which defined "taxable service", would
in no way detract from the substance of the relationship between
the State Government and the sole distributor or purchaser of
the lottery tickets which is one of principal to principal and not
of principal-agent - Furthermore, the intent of the Parliament
was that any transaction in an actionable claim (lottery being
an actionable claim) would not include an activity carried out for
the distribution of lottery by the distributor - Such activity of the
distributor would not amount to the activity of betting, gambling
or lottery - Although a lottery ticket is nothing but an actionable
claim, the conduct of a lottery scheme is nothing but a betting
and gambling activity - Activity of betting and gambling which
includes conducting of a lottery is regulated under Entry 34-List
II, with Entry 62-List II being the taxation entry - Constitution of
India - Finance Act, 2007 - Finance Act, 2010 - Finance Act,
2012 - Finance Act, 2015 - Finance Act, 2016 - Service Tax
Rules, 1994 - r.7C - Lotteries (Regulation) Act, 1998. [Paras
17.3.1, 17.4, 18.1, 18.3, 18.4-18.7, 19]

## Text

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[2025] 2 S.C.R. 756 : 2025 INSC 181
Union of India & Others
v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.
(Civil Appeal No(s). 4289-4290 of 2013)
11 February 2025
[B.V. Nagarathna* and Nongmeikapam Kotiswar Singh, JJ.]
Issue for Consideration
Matter pertains to the correctness of the judgments of the High
Court setting aside various amendments made to the Finance
Act, 1994; and whether sole distributor/purchaser of the lottery
tickets is liable to pay service tax on the sale of paper and online
lottery tickets.
Headnotes†
Finance Act, 1994 - ss.65(19), 65(105)(zzzzn), 65B(1), 65B(34),
65B(44), 65B(51), 66B, 66D(i), 66F, 65B(31A), 67 - Various
amendment to the Finance Act, 1994, time to time - Sale of
lottery tickets - Levy of service tax - Government of Sikkim
and lottery distributors, nature of relationship-principal and
principal or principal and agent - Respondents-assessees
engaged in the business of the sale of paper and online lottery
tickets organised by the Government of Sikkim and entered
into agreements with the State - Pursuant to amendment by
the Finance Act, 2003, inclusion of new category of taxable
services-"Business Auxiliary Service" - Issuance of notices
to the respondents by the Service Tax Department, requiring
them to register for payment of service tax on the activity
which the assessees were/are carrying - Series of litigations
wherein the respondents has been challenging the provisions
levying service tax introduced through various amendments
to the Finance Act from 2010-2016, and the High Court has
allowed the petitions - Interference:
Held: In view of the Finance Act, 1994, and the amendments
made, interference with the orders passed by the High Court not
called for - At each stage, the amendments made to the Finance
* Author
[2025] 2 S.C.R.
757
Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.
Act, 1994, in order to impose service tax on the sole distributor/
purchaser of the lottery tickets has failed - There being no agency
and no service rendered by the respondents-assessees as an
agent to the Government of Sikkim, service tax is not leviable
on the transactions between the purchaser of the lottery ticketsrespondents and the Government of Sikkim - Having regard to
the terms and conditions of the agreement entered into between
the government and the respondents, including the nomenclature
used to describe the respondents, the respondents were not an
agent of the State Government but purchased the lottery tickets
at own risk for the purpose of selling it through stockists, etc. and
unsold lottery tickets had to be returned to the State Government
in order to avoid misuse of the same - Thus, the relationship
was one between a principal and principal and not one between
principal and agent - Amendment was made to s.65(105) by
insertion of clause (zzzzn) which defined "taxable service", would
in no way detract from the substance of the relationship between
the State Government and the sole distributor or purchaser of
the lottery tickets which is one of principal to principal and not
of principal-agent - Furthermore, the intent of the Parliament
was that any transaction in an actionable claim (lottery being
an actionable claim) would not include an activity carried out for
the distribution of lottery by the distributor - Such activity of the
distributor would not amount to the activity of betting, gambling
or lottery - Although a lottery ticket is nothing but an actionable
claim, the conduct of a lottery scheme is nothing but a betting
and gambling activity - Activity of betting and gambling which
includes conducting of a lottery is regulated under Entry 34-List
II, with Entry 62-List II being the taxation entry - Constitution of
India - Finance Act, 2007 - Finance Act, 2010 - Finance Act,
2012 - Finance Act, 2015 - Finance Act, 2016 - Service Tax
Rules, 1994 - r.7C - Lotteries (Regulation) Act, 1998. [Paras
17.3.1, 17.4, 18.1, 18.3, 18.4-18.7, 19]
Case Law Cited
K. Arumugam v. UOI [2024] 8 SCR 830 : 2024 SCC Online SC
2278 - relied on.
Union of India v. Martin Lottery Agencies Ltd. [2009] 7 SCR 946 :
(2009) 12 SCC 209; State of Haryana v. Suman Enterprises (1994)
758
[2025] 2 S.C.R.
Supreme Court Reports
4 SCC 217; Khoday Distilleries Ltd v. State of Karnataka [1994]
Supp. 4 SCR 477 : (1995) 1 SCC 574; Sunrise Associates v.
Government of NCT of Delhi [2006] Supp. 1 SCR 421 : (2006)
5 SCC 603; Godfrey Philips India Limited v. State of Uttar
Pradesh (2005) 2 SCC 515; Hoechst Pharmaceuticals Ltd. v.
State of Bihar [1983] 3 SCR 130 : (1983) 4 SCC 45; Union of
India v. HS Dhillon [1972] 2 SCR 33 : AIR 1972 SC 1061; B.R.
Enterprises v. State of UP [1999] 2 SCR 1111 : (1999) 9 SCC
700; R.M.D. Chamarbaugwalla v. Union of India [1957] 1 SCR
930 : AIR 1957 SC 628; State of Karnataka v. State of Meghalaya
[2022] 18 SCR 516 : (2023) 4 SCC 416; Bhopal Sugar Industries
Ltd. v. STO [1977] 3 SCR 578 : (1977) 3 SCC 147; Sri Tirumala
Venkateswara Timber and Bamboo Firm v. Commercial Tax
Officer, Rajahmundry [1968] 2 SCR 476 : AIR 1968 SC 784;
Moped India Ltd. v. Assistant Collector of Central Excise, Nellore
[1985] Supp. 1 SCR 954 : (1986) 1 SCC 125; Alwaye Agencies v.
Deputy Commissioner of Agricultural Income Tax and Sales Tax
[1988] 3 SCR 879 : AIR 1988 SC 1250; Snow White Industrial
Corporation v. Collector of Central Excise [1989] 2 SCR 782 :
(1989) 3 SCC 351; M.S. Hameed v. Director of State Lotteries
(2001) 249 ITR 186 (Ker); Ahmedabad Stamp Vendors Association
v. Union of India (2002) 257 ITR 202 (Guj); Bharti Cellular Limited
(Now Bharti Airtel Limited) v. Assistant Commissioner of Income
Tax [2024] 2 SCR 1001 : (2024) 8 SCC 608 - referred to.
Books and Periodicals Cited
Bowstead and Reynolds on Agency, 23rd Edition; Benjamin's Sale
of Goods, Eleventh Edition, Sweet & Maxwell - referred to.
List of Acts
Constitution of India; Companies Act, 1956; Finance Act, 1994;
Lotteries (Regulation) Act, 1998; Finance Act, 2007; Finance Act,
2010; Finance Act, 2012; Finance Act, 2015; Finance Act, 2016;
Lotteries (Regulation) Rules, 2010; Sikkim Lotteries (Prohibition
on Running of and Sale of Single Digit and Private Lottery Tickets)
Act, 1993; Constitution (Eighty-eighth Amendment) Act, 2003;
Constitution (One Hundred and First Amendment) Act, 2016; Sale
of Goods Act, 1930; Finance Act, 2008; Service Tax Rules, 1994;
Contract Act, 1872.
[2025] 2 S.C.R.
759
Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.
List of Keywords
Paper lottery; Online lottery; Betting and Gambling; Service Tax;
Principal-principal agreement; Principal-agent agreement; Seventh
Schedule; Sole purchasers/distributors of lottery tickets; Taxable
services; Actionable claim; Negative list; Noscitur a sociis; Res extra
commercium; Residuary power; Concept of agency; Transaction
in money or actionable claim; Service tax; Sale of paper and
online lottery tickets; Government of Sikkim and lottery distributors;
Business Auxiliary Service; Lottery being an actionable claim;
Betting, gambling or lottery.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No(s). 42894290 of 2013
From the Judgment and Order dated 29.11.2012 of the High Court
of Sikkim in WP Nos. 23 and 36 of 2011
With
Civil Appeal Nos. 9506-9507 of 2013, Civil Appeal Nos. 21722173 of 2016, Civil Appeal No. 16118 of 2017, Civil Appeal
Nos. 3441, 3444, 3439 and 3442 of 2025 and SLP (C) No.
23945 of 2017
Appearances for Parties
Advs. for the Appellants:
N. Venkatraman, A.S.G., Mukesh Kumar Maroria, H.R. Rao, V.C
Bharathi, Udai Khanna, B.K. Satija, Sarthak Karol, Gurmeet Singh
Makker, B. Krishna Prasad, Raj Bahadur Yadav, Ms. Rohini Musa.
Advs. for the Respondents:
S. Ganesh, Sr. Adv., A.R. Madhav Rao, Arjun Garg, Ms. Kriti
Gupta, Ms. Sagun Srivastav, Brahma Prakash Soni, Ms. Rohini
Musa, Gautam Narayan, Ms. Asmita Singh, Tushar Nair, Anirudh
Anand, Punishk Handa, A.R. Madhav Rao, Mukunda Rao Angara,
Sameer Abhyankar, Ms. Ayushi Bansal, Aryan Srivastava, Ms. Ria
Dhawan, Rahul Kumar, Aakash Thakur, Sarthak Dora, Mukesh
Kumar Maroria, M/s Arputham Aruna and Co.
760
[2025] 2 S.C.R.
Supreme Court Reports
Judgment / Order of the Supreme Court
Judgment
Nagarathna, J.
INDEX*
History of this controversy: ...................................................
5
2012 Amendment: ......................................................................
15
2015 Amendment: .......................................................................
20
2016 Amendment: .......................................................................
23
Submissions before this Court: .................................................
26
Points for Consideration: ...........................................................
37
Relevant constitutional provisions: .......................................
38
Relevant Case Law on lotteries: ................................................
44
B.R. Enterprises: .............................................................
44
Sunrise Associates: ........................................................
45
State of Karnataka: .........................................................
47
K. Arumugam: .................................................................
47
Legal Framework: .......................................................................
51
Agreements under consideration: ..........................................
67
Paper Lotteries: ..............................................................
67
Online Computerised Agreement: ................................
78
Agency: ....................................................................................
83
Case Law: ................................................................................
90
Agreements: ............................................................................. 105
Controversy between the Parties: ............................................. 113
* Ed. Note: Pagination as per the original Judgment.
[2025] 2 S.C.R.
761
Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.
Leave granted in SLP (C) No.18565 of 2014; SLP (C) No.30629 of
2014; SLP (C) No.14111 of 2015; SLP (C) No.19200 of 2017 and
SLP (C) No.23945 of 2017.
2.
This batch of cases assail various orders of the High Court of Sikkim
passed in several writ petitions which were filed by the respondentassesses. The appellant is the Union of India in all these cases
except in SLP (C) No.19200 of 2017. For immediate reference, the
following table which has been provided by learned counsel for the
Union of India would indicate the details:
Sl.
No.
Case No(s).
Name of the
Assessee(s)
Impugned
Judgment
& Order
Dated
Amendment
Year
1
C.A. NOS.
4289-4290/2013
1. F u t u r e G a m i n g
Solutions Pvt. Ltd.
2. Summit Online Trade
Solutions Pvt. Ltd
29.11.2012
2010
2
C.A.NOS.
9506-9507/2013
1. Summit Online Trade
Solutions Pvt. Ltd.
2. F u t u r e G a m i n g
Solutions India Pvt.
Ltd.
10.05.2013
2010
3
SLP(C) No.
18565/2014
Future Gaming Solutions
India Pvt. Ltd.
24.09.2013
2012
4
SLP(C) No.
30629/2014
Summit Online Trade
Solutions Private Limited
13.05.2014
2012
5
SLP(C) No.
14111/2015
Tashi De Lek Gambling
Solutions Pvt. Ltd.
15.07.2014
2012
6
C.A. NOS.
2172-2173/2016
1. Future Gaming & Hotel
Services Pvt. Ltd.
2. Summit Online Trade
Solutions Pvt. Ltd.
14.10.2015
2015
7
SLP(C) No.
19200/2017
Future Gaming & Hotel
Services (P) Ltd.
23.03.2017
2016
8
SLP(C) No.
23945/2017
Summit Online Trade
Solutions (P) Ltd.
23.03.2017
2016
9
C.A. No.
16118/2017
Future Gaming & Hotel
Services (P) Ltd.
23.03.2017
2016
762
[2025] 2 S.C.R.
Supreme Court Reports
2.1 The petitioners before the High Court (respondents-assessees
herein) are companies incorporated as private limited companies
under the Companies Act, 1956. The respondents-assessees
herein are engaged in the business of the sale of paper and
online lottery tickets organised by the Government of Sikkim.
They entered into respective agreements with the State of
Sikkim.
2.2 Since these cases assail the amendments made to the provisions
of the Finance Act, 1994 from time to time commencing from
the year 2012, the factual backdrop of these cases shall be in
accordance with the amendments made to the Act and shall
be stated chronologically.
History of this controversy:
3.
The Parliament introduced service tax through the Finance Act, 1994
under Chapter V, which took effect on 01.07.1994. Later, through the
Finance Act, 2003, the Finance Act,1994 was amended to include a
new category of taxable services, namely "Business Auxiliary Service,"
under sub-section (19) of Section 65, effective from 01.07.2003.
Pursuant to this amendment, the Service Tax Department issued
notices to the respondents-assessees herein, under the amended
Finance Act in 2007, requiring them to register under the said Act
for payment of service tax.
3.1 Being aggrieved, the respondents-assessees herein approached
the High Court in W.P. (C) No.19 of 2007, titled Martin Lottery
Agencies Ltd. vs. Union of India, challenging the levy of
service tax upon the sale of lottery tickets. Vide judgement
dated 18.09.2007, the High Court allowed the writ petition filed
by the respondents-assessees herein declaring that service tax
was not payable on the activity undertaken by the respondentsassessees herein.
3.2 The aforesaid judgment came to be challenged before this Court
in Civil Appeal No.3239 of 2009. During the pendency of the
Civil Appeal, the Finance Act, 1994 was further amended with
the introduction of an "Explanation" to Section 65(19)(ii) of the
Finance Act, 1994. The Explanation is reproduced hereunder: -
"Explanation.- For the removal of doubts, it is hereby
declared that for the purposes of this sub-clause,
[2025] 2 S.C.R.
763
Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.
"service 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, including
lottery, lotto, bingo; [Explanation inserted vide Finance
Act, 2008 w.e.f. 16th May, 2008]"
3.3 In Union of India vs. Martin Lottery Agencies Ltd, Civil
Appeal 3239 of 2009 reported in (2009) 12 SCC 209, this Court
delivered its judgment on 05.05.2009 holding that the High Court
had rightly set aside the notices issued to the respondentsassessees herein. However, this Court held that the Explanation
to Section 65(19)(ii) of the Finance was a substantive law and
declared it to be prospective in operation. Regarding the validity
of the Explanation, the issue was left open.
3.4 The respondents-assessees herein, again, approached the
High Court by filing Writ Petition (C) No.36 of 2009 titled
M/s. Future Gaming Solutions Pvt. Ltd. vs. Union of India
challenging the validity of the Explanation to Section 65 (19)
(ii) of the Finance Act, 1994. The High Court dismissed the writ
petitions vide judgement dated 30.07.2010. Being aggrieved by
this dismissal, the respondents-assessees herein approached
this Court by filing a Special Leave Petition, being SLP (C)
No.26771 of 2010. The same was converted as a Civil Appeal
No.2782 of 2012.
Recently this Court (this very Bench) in Civil Appeal Nos.28422848 of 2012 titled as K. Arumugam vs. UOI dated 08.08.2024
reported in 2024 SCC Online SC 2278 ("K. Arumugam") and
batch including Civil Appeal No.2782 of 2012 allowed the
appeals preferred by the respondents-assessees herein and
set aside the order passed by the High Court dated 30.07.2010
and held that lottery tickets being actionable claims and not
being goods within the meaning of sub-clause (i) of clause
(19) of Section 65 of the Finance Act, 1994, would expressly
get excluded from the scope of the said provision. In the
circumstances, service tax on the promotion or marketing or
sale of lottery tickets which are actionable claims could not
have been levied under the said sub-clause.
764
[2025] 2 S.C.R.
Supreme Court Reports
3.5 However, during the pendency of the above appeal, the Finance
Act, 1994 again came to be amended with the deletion of the
Explanation to Section 65(19)(ii) and the introduction of a new
category of "taxable service" vide clause (zzzzn) to sub-section
(105) of Section 65 vide the Finance Act, 2010 with effect from
01.07.2010. Clause (zzzzn) to sub-section (105) of Section 65
reads as under:
"(105) "taxable service" means any service
provided or to be provided,- ... (zzzzn) to any
person, by any other person, for promotion,
marketing, organising or in any other manner
assisting in organizing games of chance,
including lottery, Bingo or Lotto in whatever form
or by whatever name called, whether or not
conducted through internet or other electronic
networks;"
3.6 Challenging this amended clause (zzzzn) to sub-section (105)
to Section 65 of the Finance Act, 1994, the assesses filed
writ petitions before the High Court. Primarily, the High Court
examined the relevant clauses of the agreements.
3.7 After hearing the rival contentions made by the respective
parties, the High Court allowed the writ petitions i.e., W.P.
(C) No. 36 of 2011 and W.P. (C). No. 26 of 2011 by way of
common judgement and order dated 29.11.2012. The pertinent
findings in the judgement dated 29.11.2012 have been culled
out hereinunder:
a.
The High Court took note of the fact that lottery, per se,
falls within the expression "betting and gambling", which
is considered pernicious in nature. It receives legal validity
only if it is run or authorised by the State Government,
subject to the conditions laid down in Section 4 of the
Lotteries (Regulation) Act, 1998 which is a Central
enactment. The Court further observed that it is the State's
privilege that can be partially delegated to another party,
provided they adhere to the statutory conditions contained
in the regulatory Act.
b.
Although no Entry in any of the Lists of the Seventh
Schedule specifically provides for levying taxes on
[2025] 2 S.C.R.
765
Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.
lotteries, the power to enact laws for taxing lotteries must
be understood as inherent within the expressions "betting
and gambling," as lottery activities fall within this category.
c.
The High Court noted that betting and gambling itself is
an activity though the lottery ticket is a tangible thing that
carries with it the right to participate in the game of chance.
Thus, all activities right from the publishing of the lottery
tickets to participation in the game of chance, declaration of
draw and even distribution of prize to the winner fall within
the purview of the expression 'betting and gambling'. Thus
the power to levy tax on the organisation, promotion and
marketing of lottery being an act of betting and gambling
comes within the exclusive domain of Entry 62 - List II of
the Seventh Schedule of the Constitution.
d.
The High Court applied the test of the principle of pith
and substance and observed that the power to levy tax
on lotteries, which are considered games of chance and
fall under "betting and gambling" in Entry 62 - List II, lies
exclusively with the State Legislature. Consequently,
Parliament's authority to impose such a tax under its
residuary power in Entry 97 - List I, read with Article 248
of the Constitution, is excluded. The High Court held that
while Parliament is competent to levy service tax under
Entry 97 - List I, this does not imply that it can impose
such a tax on lotteries, as the power to levy taxes on this
subject has been conferred on the State Legislature in
List II. That the residuary powers of Parliament can only
be exercised when no Entry in any of the Lists provide
a legislative field. Hence, it is the exclusive legislative
domain of the State Legislature to levy tax of any nature
on lotteries by virtue of Entry 62 - List II.
e.
The High Court further held that when a distributor
purchases goods at a commercial price, they are not
acting as an agent for the manufacturer.
f.
The High Court observed that in the case at hand, the
lottery tickets are sold as goods by the State Government
to the assesses therein at a discounted price of 70 paise
per ticket, compared to the MRP of Re.1. The predominant
766
[2025] 2 S.C.R.
Supreme Court Reports
part of the transaction is a sale of goods. While considering
the 30% discount offered to the respondents-assessees
herein on the MRP, the High Court took note that offering
such discounts is a normal trade practice in any sale
and purchase transaction. If the seller sells the goods at
the MRP to the ultimate consumer, intermediaries must
receive a discount to cover establishment costs, logistics,
and some margin of profit.
g.
Upon perusal of various clauses in the agreement, the
High Court observed that the State Government appoints
stockists or distributors to sell the tickets to ultimate buyers,
who purchase them at the MRP. These intermediaries
must be provided discounts from the MRP to cover their
expenses and ensure a profit margin.
h.
The High Court also held that the advertisement expenses
incurred for promoting the State lottery are borne by the
respondents-assessees herein to promote their own
business, not as a service to the State Government. Clause
(20) of the agreement further stipulates that the petitioner
therein is solely responsible for incurring all advertising
expenses, including the publication of lottery results.
i.
In light of the above observations, the High Court held that
in the case at hand the lottery is organised by the state
government through its various stockists etc. but cannot be
construed to be a service rendered to the State Government.
Hence, the question of service tax does not arise.
3.8 The High Court ultimately concluded as under:
(i) "In the backdrop of discussion on Ground (A) we
have no hesitation to conclude that the activities of
the lottery distributors i.e. the petitioners herein do
not constitute a service and thus beyond the purview
of "taxable service" as statutorily defined under
clause (zzzzn) of sub-section 105 of Section 65 of
the Finance Act, 1994 as amended vide Finance
Act, 2010.
(ii) The activity of promotion, marketing, organizing or
in any other manner assisting in organising game of
[2025] 2 S.C.R.
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Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.
chance including lottery is an activity included in the
expression "betting and gambling" as incorporated
under Entry 34 and 62 of List II to Seventh Schedule
of Constitution of India.
(iii) The activity of promotion, marketing, organizing or
in any other manner assisting in organizing game of
chance including lottery being an activity of "betting
and gambling" under Entry 62, List II to Seventh
Schedule of Constitution of India, the State Legislature
alone is competent to levy any tax on such activity
under Entry 62.
(iv) The Parliament has the competence and
jurisdiction to levy taxes on any subject matter
including "service tax" under Entry 97, List I, read with
Article 248 of the Constitution of India except where
such powers are traceable to any of the entries in List
II and III to Seventh Schedule of Constitution of India.
(v) Power to tax the activity of "betting and gambling"
as explained above being within the exclusive domain
of State Legislature under Entry 62, List II, the
Parliament in exercise of its residuary power under
Entry 97, List I to Seventh Schedule of Constitution
of India lacks legislative competence to impose any
tax including "service tax" on such activity."
3.9 In view of the above conclusions, the petitions were allowed
striking down clause (zzzzn) to sub-section (105) of Section 65
of Finance Act, 1994 as introduced vide Finance Act, 2010 as
ultra vires the Constitution having been enacted in contravention
to Entry 97 - List I to Seventh Schedule read with Article 248 of
Constitution of India. Consequently, all actions of imposing service
tax upon the respondents-assessees herein being distributors
of lottery organized by State of Sikkim were set aside. Since
the respondents-assessees herein had secured registration
and had paid service tax under the impugned provision on their
own, the judgment was to operate prospectively.
3.10 Being aggrieved by the judgement of the High Court of Sikkim
in Writ Petition (Civil) No. 36 of 2011 and other allied writ
768
[2025] 2 S.C.R.
Supreme Court Reports
petitions dated 29.11.2012 allowing the writ petitions filed by the
respondents-assessees herein and striking down clause (zzzzn)
to sub-section (105) of Section 65 of Finance Act, 1994 as
introduced vide Finance Act, 2010 as ultra vires the Constitution
of India being enacted in contravention of Article 248 of the
Constitution of India read with Entry 97 - List I to the Seventh
Schedule thereto and setting aside all consequential actions
of the Revenue in imposing service tax upon the respondentsassessees herein (distributors of lottery organised by State of
Sikkim), the Revenue has preferred the present Civil Appeal
Nos.4289-4290 of 2013.
2012 Amendment:
4.
During the pendency of the matter before this Court, the Finance
Act, 1994, was amended once again by the Finance Act, 2012,
whereby several provisions were introduced giving a new dimension
to the meaning of 'taxable service' as services that would be taxable
thereunder. The relevant provisions of the Finance Act, 1994, as
amended, by the Finance Act, 2012, which is effective from 01.07.2012
read as under:-
"65B. In this Chapter, unless the context otherwise
requires,-
(1) "actionable claim" shall have the meaning assigned
to it in section 3 of the Transfer of Property Act, 1882 (4
of 1882);
xxx
(34) "negative list" means the services which are listed
in section 66D;
xxx
(44) "service" means any activity carried out by a person
for another for consideration, and includes a declared
service, but shall not include-
(a) an activity which constitutes merely,-
xxx
(iii) a transaction in money or actionable claim;
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(51) "taxable service" means any service on which service
tax is leviable under section 66B;
Charge of service tax on and after Finance Act, 2012.
66B. There shall be levied a tax (hereinafter referred to
as the service tax) at the rate of twelve per cent on the
value of all services, other than those services specified in
the negative list, provided or agreed to be provided in the
taxable territory by one person to another and collected
in such manner as may be prescribed.
Negative list of services. 66D.
The negative list shall comprise of the following services,
namely:-
xxx
(i) betting, gambling or lottery;
xxx"
4.1 On the introduction of the aforesaid amendments the
respondents-assessees herein had intimated to the Revenue
vide letter Ref. No.FGSIPL/SK/0024/ 12-13 dated 28.06.2012
stating that in view of the change in the legal position the
respondents-assessees herein would not be paying service
tax with effect from 01.07.2012.
4.2 In response to the above, the Revenue issued letter C. No.V(3)7/
ST/FGSIPvtLtd/GTK/2009/295 dated 06.07.2012 stating that
as per the Notification. No. 36/2012 ST dated 20.06.2012 read
with Rule 6(7C) of the Finance Act, 1994 (as amended), the
distributor or selling agents are liable to pay service tax at the rate
specified for the taxable service of promoting, organizing or in
any other manner assisting in arranging lottery. Being aggrieved
by this communication dated 06.07.2012 and the Finance Act,
2012, the respondents-assessees herein approached the High
Court by filing Writ Petition No.32 of 2012. The respondentsassessees herein assailed the Amendment Act of 2012 on the
various grounds.
4.3 After hearing the rival parties, the High Court allowed the writ
petition filed by respondents-assessees herein before the
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High Court vide order dated 24.09.2013 and set aside the
amendments in 2012 made to the Finance Act, 1994. The
relevant findings of the High Court are as follows:
a.
The High Court held that the lottery being an 'actionable
claim' does not fall within the purview of the service tax
laws as introduced by the new provisions of the Finance
Act, 2012.
b.
The High Court found no change in the circumstance as
regards the position found in the earlier issues set out
above except that clause (zzzzn) of sub-section (105) of
Section 65 of the Finance Act, 2010, and the replaced
service tax law regime under the Finance Act, 2012, in the
form of Section 65B and sub-sections thereunder, Sections
66B and 66D were already dealt with earlier.
c.
The High Court observed that even under sub-section (34)
of Section 65B read with Sections 66B and 66D lottery
stands excluded from the purview of service tax under
the Finance Act, 2012 as being one in the 'negative list';
d.
Further, the High Court held that activities comprising of
promotions, organising, reselling or any other manner
assisting in arranging of lottery tickets of the State
Lotteries do not establish the relationship of a principal
or an agent but rather that of a buyer and a seller. This
was in view of the nature of the transaction consisting
of bulk purchases of lottery tickets by the respondentsassessees herein from the State Government on full
payment on a discounted price as a natural business
transaction and other related features like there being
no privity of contract between the State Government and
the stockists, agents, resellers under the respondentsassessees herein.
Thereafter, following the order dated 24.09.2013, the High Court
passed orders dated 13.05.2014 and 15.07.2015.
4.4 Being aggrieved by the orders passed by the High Court dated
24.09.2013, 13.05.2014 and 15.07.2015 the Union preferred
SLPs before this Court being SLP (C) No.18565 of 2014, SLP (C)
No.30629 of 2014 and SLP (C) No.14111 of 2015, respectively.
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2015 Amendment:
5.
The Parliament again made amendments to the Finance Act,
1994 vide the Finance Act, 2015 The amendment is extracted as
below:
"65B. In this Chapter, unless the context otherwise
requires,-
xxx
(31A) "lottery distributor or selling agent" means a person
appointed or authorised by a State for the purposes of
promoting, marketing, selling or facilitating in organising
lottery of any kind, in any manner, organised by such
State in accordance with the provisions of the Lotteries
(Regulation) Act, 1998 (17 of 1998);
xxx
(44) "service" means any activity carried out by a person
for another for consideration, and includes a declared
service, but shall not include- (a) an activity which
constitutes merely,-
xxx
(iii) a transaction in money or actionable claim;
xxx
Explanation 2.-For the purposes of this clause, the
expression "transaction in money or actionable claim"
shall not include-
xxx
(ii) any activity carried out, for a consideration, in relation
to, or for facilitation of, a transaction in money or actionable
claim, including the activity carried out-
(a) by a lottery distributor or selling agent in relation
to promotion, marketing, organising, selling of lottery
or facilitating in organising lottery of any kind, in any
other manner;
xxx
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Negative list of services.
66D. The negative list shall comprise of the following
services, namely:-
xxx
(i) betting, gambling or lottery;
Explanation.-For the purposes of this clause, the
expression "betting, gambling or lottery" shall not include
the activity specified in Explanation 2 to clause (44) of
section 65.
xxx
Valuation of taxable services for charging service tax:
67. (1) Subject to the provisions of this Chapter, service
tax chargeable on any taxable service with reference to
its value, then such value shall,- (i) in a case where the
provision of service is for a consideration in money, be the
gross amount charged by the service provider for such
service provided or to be provided by him;
xxx
Explanation.-For the purposes of this section,- (a)
"consideration" includesxxx
(iii) any amount retained by the lottery distributor or selling
agent from gross sale amount of lottery ticket in addition to
the fee or commission, if any, or, as the case may be, the
discount received, that is to say, the difference in the face
value of lottery ticket and the price at which the distributor
or selling agent gets such ticket."
5.1 The aforesaid amendments were challenged by the respondentsassessees herein before the High Court by filing W.P. (C) No.
39 of 2015 and W.P. (C) No. 40 of 2015. By the impugned order
and judgement dated 14.10.2015, the High Court allowed the
writ petitions filed by the respondents-assessees herein and
held as under:
a.
The respondents-assessees herein, in buying and selling
the lottery tickets are not rendering any service to the
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Union of India & Others v.
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State and therefore, their activity does not fall within the
meaning of 'service' as provided under clauses (31A) and
(44) of Section 65B and, therefore, outside the purview of
Explanation 2 to the said Section;
b.
In any case, since by the Explanation the scope of
Section 66D which is the main provision which is sought
to be expanded, is ultra vires the Finance Act, 1994, it is
accordingly struck down;
5.2 Being aggrieved by this impugned order and judgment dated
14.10.2015, the Union of India approached this Court by filing
Civil Appeal Nos.2172-73 of 2016.
2016 Amendment:
6.
In the meantime, the Parliament came out with an amendment to
the Finance Act, 2016 to the following effect:
"In Section 65B- (b) in clause (44), in Explanation, 2, in
sub-clause (ii), for item (a), the following item shall be
substituted, namely- (a) by a lottery distributor or selling
agent on behalf of the State Government, in relation to
promotion, marketing, organizing, selling of lottery or
facilitating in organizing lottery or any kind, in any other
manner, in accordance with the provisions of the Lottery
(Regulation) Act, 1998."
6.1 Again, this amendment to the Finance Act, 2016 was challenged
before the High Court of Sikkim by the respondents-assessees
herein in Writ Petition No. 34 of 2016 and Writ Petition No.48
of 2016.
6.2 The High Court vide impugned order and judgement dated
23.03.2017 allowed the writ petitions and held that the
amendments carried out by the Finance Act, 2016, are not
capable of being implemented for imposition and levy of service
tax on the services allegedly provided by the respondentsassessees herein. The salient findings of the High Court are
as follows:
a.
The High Court held that taxation is a distinct matter for the
purpose of legislative competence and it must flow from
the specific Entry provided for levy and imposition of taxes.
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b.
The relevant service tax leviable is on promotion, marketing,
organizing, selling of lottery or facilitating in organizing
lottery of any kind, in any other manner. The Union
Parliament is conferred with the power and competence
under Article 268A read with Entry 97 - List I (Union List)
to impose and levy service tax on other related activities.
Hence, the High Court noted that the impugned amendment
brought in Finance Act, 2016 is not unconstitutional.
However, the Court noted that the Division Benches of
the High Court in W.P.(C) Nos.36 & 23 of 2011 (Future
Gaming Solutions Pvt. Ltd. vs. Union of India); W.P.(C)
No.32 of 2012 (Future Gaming Solutions India Pvt. Ltd.
vs. Union of India) and W.P.(C) No.39 of 2015 (Future
Gaming & Hotel Services Pvt. Ltd. vs. Union of India)
have categorically held that the Union-Parliament lacks
competence to impose service tax and the concerned
amendments were held as ultra vires to the Constitution
of India. This issue has attained finality and was pending
for consideration at that time before this Court.
c.
There is no mechanism to ascertain and compute the
service rendered by a person for promoting, marketing,
selling or facilitating in organizing a lottery of any kind, in
any manner, organized by such State in accordance with
the provisions of the Lotteries (Regulation) Act, 1998.
6.3 Being aggrieved by the above-impugned judgement and order
dated 23.03.2017, the Union of India has approached this
Court in SLP (C) No.23945 of 2017 and SLP (C) No. 16118
of 2017. Being aggrieved by the specific findings in judgment
dated 23.03.2017 wherein the High Court held that there was
no mechanism or methodology to ascertain and compute
the services rendered by the respondent-assessees, the
respondent-assessee has filed SLP (C) No.19200 of 2017.
Submissions before this Court:
7.
Learned Counsel for the Revenue, Sri Chandrashekara Bharathi
made the following submissions:
a.
The statutory framework governing lotteries, particularly the
Lotteries (Regulation) Act of 1998 ("Lotteries Act", for short)
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Union of India & Others v.
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and related rules, mandate that the organizing State must be
the ultimate seller of lottery tickets to the public, inherently
establishing an agency relationship between the State of
Sikkim and the respondents-assessees herein in these cases.
Article 246(1) of the Indian Constitution empowers Parliament
to legislate on lotteries conducted by the government, which it
exercised by enacting the Lotteries Act. Section 4(c) of this Act
prescribes that the State government must sell tickets "either
itself or through distributors or selling agents." Further, Rule 2(1)
(c) of the Lotteries (Regulation) Rules, 2010 ("Lotteries Rules",
for short) defines a "distributor or selling agent" as an entity
appointed by the organizing State to sell tickets on behalf of the
State. Learned counsel argued that the use of terms such as
"through" and "on behalf of" in the statute is conclusive evidence
of the intended agency relationship, as these terms denote that
the respondents-assessees herein are merely facilitating sales
on behalf of the State, not as independent principals.
b.
The judgment in State of Haryana vs. Suman Enterprises,
(1994) 4 SCC 217 held that a State-organized lottery requires the
State to retain core control to protect public trust in the scheme.
In that case, this Court stated four essential characteristics
that distinguish a State-organized lottery: (i) tickets must bear
the State's logo, be printed under the State's authority, and be
sold directly by the State or its designated agents; (ii) the sale
proceeds must be credited to the State's funds; (iii) draws must
be conducted by the State; and (iv) unclaimed prize money must
revert to the State. By retaining control over these aspects, the
State ensures that the public's trust in the lottery's fairness and
legitimacy is maintained. That these characteristics form the
backbone of the Lotteries Act, and when combined with statutory
language, they mandate an agency relationship between the
respondents-assessees herein and the State, which cannot be
unilaterally recharacterized as principal to principal.
c.
The State of Sikkim's monopoly over the lottery business in
the region, as enacted under the Sikkim Lotteries (Prohibition
on Running of and Sale of Single Digit and Private Lottery
Tickets) Act, 1993, further supports the agency interpretation.
Learned counsel cited Khoday Distilleries Ltd vs. State of
Karnataka, (1995) 1 SCC 574 and argued that the State can
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either conduct the monopoly business itself or do so through
agents but cannot delegate its core functions to independent
entities without compromising the monopoly.