Taxing Lottery had been a taxing proposition for the government, not always leading to success. The lottery business in India is a big-time lottery for the organisers and ticket sellers with a turnover of over a lakh of Crores a year.
There is said to be a Lottery Mafia in operation in several States and the whole scheme is full of frauds with absolutely no control. Interestingly the small North Eastern states are the origin for many lotteries and most of the tickets are sold deep down South in Kerala. Technology has only added a new dimension to the fraud. While many states have banned lotteries, Internet knows no geographic boundaries and online lotteries are doing brisk business.
Unfortunately, governments have been interested only in getting their pound of flesh by taxes, instead of curbing the menace, which is simply an organised way of looting the poor people.
Government's attempts to bring sale of lottery tickets under Service Tax net were not really successful. The Department tried to tax it under ‘business auxiliary service' from 01.07.2003, but that did not find favour with the Courts. Then they amended the Act to include an explanation to the definition of ‘business auxiliary service', which the Supreme Court held to be valid only prospectively.
By Finance Act 2010, a new heading zzzzn was introduced which included lottery. This was also struck down by a High Court. Come 2012 and lottery fell in the negative list, but the positive officers of the Department were not prepared to accept such negative attitude of the Government and Parliament. Immediately after the negative list regime came into existence, a Superintendent issued a letter to a lottery seller that he was liable to pay Service Tax.
This letter was challenged in the High Court and the High Court has quashed it emphatically holding that transactions in lottery tickets are not liable to service tax under the provisions of the Finance Act, 1994.
But the Government was determined to tax lottery and again amended the Finance Act, 1994 in 2015.
The memorandum to the Budget 2015 states,
The intention in law has been to levy Service Tax on the services provided by:
(i) chit fund foremen by way of conducting a chit.(ii) distributors or selling agents of lottery, as appointed or authorized by the organizing state for promoting, marketing, distributing, selling, or assisting the state in any other way for organizing and conducting a lottery.
However, Courts have taken a contrary view in some cases, while in some cases the levy has been upheld. An Explanation is being inserted in the definition of “service” to specifically state the intention of the legislature to levy service tax on activities undertaken by chit fund foremen in relation to chit, and distributors or selling agents of lottery in relation to lotteries.
Even this did not work; The High Court of Sikkim yesterday struck down the provisions imposing Service Tax on lottery