In a decisive ruling on Tuesday, the Supreme Court reinforced the constitutional principle that lottery distributors are exempt from service tax imposed by the Union government, thereby rejecting the Centre’s appeal against the Sikkim High Court’s judgment.
A bench comprising Justices B.V. Nagarathna and N.K. Singh dismissed the Centre’s argument that service tax should be applicable to lottery transactions, affirming instead that the taxation of such activities falls strictly within the jurisdiction of state governments.
“In the absence of a principal-agent relationship, lottery distributors cannot be subjected to service tax. However, they remain liable for gambling taxes imposed by the state under Entry 62, List II of the Constitution,” Justice Nagarathna stated while delivering the judgment.
The bench further clarified that “service tax does not apply to transactions between lottery ticket purchasers and the issuing firms. Upon thorough deliberation, we find no merit in the appeals filed by the Union of India and others. Consequently, these appeals stand dismissed.”
By upholding the Sikkim High Court’s verdict, the Supreme Court reaffirmed that the authority to impose taxes on lotteries is constitutionally vested in state governments, thereby excluding the Centre from exercising jurisdiction in this matter. The Union government had maintained that it possessed the right to levy service tax on lottery-related transactions, an argument that the Court ultimately rejected.
The ruling aligns with longstanding judicial interpretations that classify lotteries within the domain of “betting and gambling,” an area explicitly covered under Entry 62 of the State List in the Seventh Schedule of the Constitution. This classification confirms that only state legislatures are empowered to enact taxation laws regulating lotteries and related gambling activities.
The Centre originally approached the Supreme Court in 2013, seeking to challenge the Sikkim High Court’s decision, which had been prompted by a petition filed by Future Gaming Solutions Pvt. Ltd., a lottery firm contesting the imposition of service tax. With this latest ruling, the Supreme Court has further solidified the constitutional distinction between state and central taxation powers concerning the regulation of gambling and betting enterprises.
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