Case BriefsSupreme Court

Supreme Court: The 3-judge bench of Ashok Bhushan*, R. Subhash Reddy and MR Shah, JJ has held that while determining the taxable value of lottery the prize money is not to be excluded for the purpose of levy of GST.

The Court explained that for determining the value of the lottery, there is statutory provision contained in Section 15 read with Rule 31A. Section 15 of the Central Goods and Services Tax Act, 2017 by sub-section (2) provides what shall be included in the value of supply. What can be included in the value is enumerated in sub-clause (a) to (e) of sub-section (2) of Section 15. Further, subsection (3) of Section 15 provides that what shall not be included in the value of the supply.

“What is the value of taxable supply is subject to the statutory provision which clearly regulates, which provision has to be given its full effect and something which is not required to be excluded in the value of taxable supply cannot be added by judicial interpretation.”

Further, Rule 31A as noted above, sub-rule (2) as amended clearly provides that value of supply shall be deemed to be 100/128 of the face value of ticket or of the prize as notified in the Official Gazette by the Organising State, whichever is higher.

The Court said that the value of taxable supply is a matter of statutory regulation and when the value is to be transaction value which is to be determined as per Section 15 it is not permissible to compute the value of taxable supply by excluding prize which has been contemplated in the statutory scheme. It was hence, held that

“When prize paid by the distributor/agent is not contemplated to be excluded from the value of taxable supply, we are not persuaded to accept the submission of the petitioner that prize money should be excluded for computing the taxable value of supply.”

[Skill Lotto Solutions v. Union of India, 2020 SCC OnLine SC 990, decided on 03.12.2020]


*Justice Ashok Bhushan has penned this judgment

For petitioner: Senior Advocate Ravindra Shrivastava,

For Union of India: Additional Solicitor General Vikramjit Banerjee

For Intervenor: Senior Advocate C.A. Sundaram

Also read: Supreme Court upholds constitutionality of imposition of GST on lotteries, betting and gambling 

Case BriefsSupreme Court

Supreme Court: The 3-judge bench of Ashok Bhushan, R. Subhash Reddy and MR Shah, JJ has upheld the constitutionality of imposition of GST on lotteries, betting and gambling.

Here are the key takeaways from the judgment: 

Whether the inclusion of actionable claim in the definition of goods as given in Section 2(52) of Central Goods and Services Tax Act, 2017 is contrary to the legal meaning of goods and unconstitutional?

The inclusion of actionable claim in definition “goods” as given in Section 2(52) of Central Goods and Services Tax Act, 2017 is not contrary to the legal meaning of goods nor it is in conflict with the definition of goods given under Article 366(12).

“The Constitution framers were well aware of the definition of goods as occurring in the Sale of Goods Act, 1930 when the Constitution was enforced. By providing an inclusive definition of goods in Article 366(12), the Constitution framers never intended to give any restrictive meaning of goods.”

Parliament by the  Constitution (One Hundred and First Amendment) Act, 2016 inserted Article 246A, a special provision with respect to goods and services tax in which special power has to be liberally construed empowering the Parliament to make laws with respect to goods and services tax. Article 246A begins with non obstante clause that is “Notwithstanding anything contained in Articles 246 and 254”, which confers very wide power to make laws. When the Parliament has been conferred power to make law with respect to goods and services, the legislative power of the Parliament is plenary.

“The power to make laws as conferred by Article 246A fully empowers the Parliament to make laws with respect to goods and services tax and expansive definition of goods given in Section 2(52) cannot be said to be not in accord with the constitutional provisions.”

Whether the Constitution Bench’s observation ‘lottery is an actionable claim’ in Sunrise Associates v. Govt. of NCT of Delhi, (2006) 5 SCC 603 a law or obiter dicta?

The definition of goods in Section 2(j) as noticed by the Constitution Bench states that ‘goods’ means all kinds of movable property (other than newspaper, actionable claims, stocks, shares and securities). The exclusion of the actionable claims from the goods as enumerated in the definition is also a part of the definition.

“If a particular item is covered by exclusion it is obvious that it does not fall in the definition of the goods. When the Constitution Bench came to the conclusion that the lottery is an actionable claim it was considering the definition of 2(j) itself and what has been held by the Constitution Bench cannot be held to be obiter dicta.”

The Constitution Bench in Sunrise Associates has categorically held that lottery is actionable claim after due consideration which is ratio of the judgment. The expansion of definition of goods under Section 2(52) of Act, 2017 by including actionable claim is in the line with the Constitution Bench pronouncement in Sunrise Associates and no exception can be taken to the definition of the goods as occurring in Section 2(52).

Whether exclusion of lottery, betting and gambling from Item No.6 Schedule III of Central Goods and Services Tax Act, 2017 is hostile discrimination and violative of Article 14 of the Constitution of India?

The Constitution Bench in State of Bombay Vs. R.M.D. Chamarbaugwala, AIR 1957 SC 699 has clearly stated that Constitution makers who set up an ideal welfare State have never intended to elevate betting and gambling on the level of country’s trade or business or commerce.

Lottery, betting and gambling are well known concepts and have been in practice in this country since before independence and were regulated and taxed by different legislations. When Act, 2017 defined the goods to include actionable claims and included only three categories of actionable claims, i.e., lottery, betting and gambling for purposes of levy of GST, it cannot be said that there was no rationale for including these three actionable claims for tax purposes.

“It is a duty of the State to strive to promote the welfare of the people by securing and protecting, as effectively as it may, a social order in which justice, social, economic and political, shall inform all the institutions of the national life.”

Hence, there is no violation of Article 14 in Item No. 6 of Schedule III of the Act, 2017.

Whether while determining the face value of the lottery tickets for levy of GST, prize money is to be excluded? 

Read here 

[Skill Lotto Solutions v. Union of India, 2020 SCC OnLine SC 990, decided on 03.12.2020]


*Justice Ashok Bhushan has penned this judgment

For petitioner: Senior Advocate Ravindra Shrivastava,

For Union of India: Additional Solicitor General Vikramjit Banerjee

For Intervenor: Senior Advocate C.A. Sundaram

 

Also read: GST on lotteries| Prize money not to be excluded for computing the taxable value of supply, holds SC

Case BriefsHigh Courts

Madras High Court: While deciding the instant petition seeking quashment of proceedings under Section 12 of the Tamil Nadu Gaming Act, 1930, the Court delved into the issue of permissibility of online gambling in Tamil Nadu. The Bench of B. Pugalendhi, J., observed that the Tamil Nadu Government must pass suitable legislation, regulating and controlling such online gaming through license, in accordance with the law of the land and the judicial precedents in this regard. The Court also clarified that it is not against the virtual games, however there should be a regulatory body to monitor the legal gaming activities, be it in the real world or the virtual world.

As per the facts of the case, the petitioner and 4 others were arrested by the police under the provisions of Tamil Nadu Gaming Act, 1930. Counsel for the petitioner L.P. Maurya, submitted that, that the place mentioned in the FIR is neither a common area as per Section 3 of the T.N. Gaming Act, nor it can be termed as a public street/ place, as contemplated under Section 12 of the 1930 Act. Therefore the petitioner’s arrest was unnecessary. However, K.K. Ramakrishnan, Additional Public Prosecutor, contended that the accused persons were playing cards with stakes and there is a legal presumption under Section 6 of the 1930 Act that the persons found gaming with cards in any place are presumed to be playing in a common gaming house.

Perusing the contentions and the facts of the case, the Court quashed the proceedings initiated against the petitioner under the 1930 Act. However, the focus of the Bench remained on the regulation of online gambling such as RummyPassion, Nazara, LeoVegas, and Spartan Poker etc. The Court also noted that the number of advertisements promoting online gambling on social media has increased in the past few years and it seems that they are mainly targeting the unemployed youth under the pretext of earning money from the comfort of their homes. The Court further considered the status report submitted by the Assistant Inspector General of Police, Law and Order, wherein it was stated that online rummy cannot be considered as a game of skill and that at present, Tamil Nadu has no specific Rule/ Regulation to address the issue.

The Court observed that, “gaming industry in India is undergoing a dramatic transition, not only in terms of its audience, but also in terms of the modes of participation and engagement”. The Public Gaming Act, 1867, is the Central Act which has been adopted by several State Governments and the other States have enacted their own legislation to regulate gaming / gambling, within its territory. But when it comes to regulating online gambling, the States of Sikkim, Nagaland and Telangana are step ahead with respective legislations like Sikkim Online Gaming (Regulation) Act, 2008, Nagaland Prohibition of Gambling and Promotion and Regulation of Online Games of Skill Act, 2016 and Telangana Gaming (Amendment) Act, 2017. The Court noted that regulation of online gambling is the need of the hour because if unchecked, these virtual gambling sites have the potential to trap frustrated unemployed youths who may end up incurring heavy financial losses and end up becoming criminals. The Court pointed out that if the virtual gambling industry is regulated, then, it can encourage investment in the sector, which could lead to technological advancements as well as generation of revenue and employment.[D. Siluvai Venance v. State, 2020 SCC OnLine Mad 1546 , decided on 24-07-2020]

Case BriefsHigh Courts

Rajasthan High Court: A Division Bench of Indrajit Mahanty CJ, and Ashok Kumar Gaur J., dismissed a Public Interest Litigation alleging the online game “Dream 11” of committing offence of betting and gambling.

In the present case, the petitioner filed a PIL with a grievance that the online game “Dream 11” should be declared involving betting and gambling. The petitioner prayed in his petition that the Court may pass suitable order/s to prohibit the stated game and also measures needs to be undertaken in order to prohibit the commission of offences of gambling.

The Additional Advocate General representing the respondents, Rajesh Maharshi, filed a reply to the above petition contending that the issues in hand has been discussed by various High Courts and the legality of the game has been upheld. The respondents submitted that as per Section 12 of the Rajasthan Public Gambling Ordinance, 1949, the game involving “mere skill” is exempted from the applicability of the Act/Ordinance and since “Dream 11” game has been held to be a game of skill and not a game of chance.

The advocate representing the petitioner, Mr Sunil Kumar Singh, submitted that the State authorities have miserably failed to discharge their statutory obligation of preventing such game which is played by the innocent people and they indulge themselves in gambling and betting.

The Court upon analysing the facts and circumstances declared that the online game did not involve elements of gambling or betting and the State authorities have not violated any statutory obligations.

The Court placed reliance on the directions of the Punjab and High Court decision, Varun Gumber v. Union Territory of Chandigarh 2017 Cri.L.J. 3827 wherein it was decided: “The respondent company’s website and success in Dream 11’s fantasy sports basically arises out of users exercise, superior knowledge, judgment and attention…. Equally so, before I conclude, I must express that gambling is not a trade and thus, is not protected by Article 19(1)(g) of Constitution of India and thus, the fantasy games of the respondent-company cannot said to be falling within the gambling activities as the same involves the substantial skills which is nothing but is a business activity” The Court also relied on the Division Bench judgment of the Bombay High Court Gurdeep Singh Sachar v. Union of India Criminal Public Interest Litigation Stamp No. 22 of 2019 which upheld the legality of the game and upon challenge to the Supreme Court, the Apex Court had dismissed the challenge. The Bombay High Court had stated: “Only if the result of the game/contest is determined merely by chance or accident, any money put on stake with consciousness of risk and hope to gain, would be ‘gambling’ or ‘betting’. There is no merit in the submission that the result of their fantasy game/contest shall be considered as merely by chance or accident notwithstanding involvement of substantial skill.”

The Division Bench also held that the game did not involve any form of gambling since the result of the fantasy game also did not depend on winning or losing any particular team in the real world on any given day. The present Court dismissed the PIL being unable to find any merit in the prayers of the petitioner.[Chandresh Sankhla v. State Of Rajasthan, 2020 SCC OnLine Raj 264, decided on 14-02-2020]

Case BriefsHigh Courts

Karnataka High Court: A Single Judge Bench comprising of K.N. Phanendra, J. allowed a criminal petition and quashed the proceedings pending against the petitioner for the offence under Section 78(6) of  Karnataka Police Act.

The petitioners were accused of betting for an IPL match between Gujarat Lions and Mumbai Indians. They were accused of collecting money from the public and not repaying as promised. Learned counsel for the petitioners submitted that no offence as mentioned in the charge-sheet was attracted to facts of the case. He prayed that the proceedings against the petitioners may be quashed.

The High Court perused the charge sheet and found that no independent witness had been examined with reference to betting. Nothing was mentioned in the charge sheet about who all participated in the betting, paid money, how much money was paid, etc. The Court opined that the accused could not unilaterally play gambling without the help of public at large. In such circumstances, the Court held that when the offence itself was not constituted, nothing remained to be considered. Thus, the petition was allowed and proceedings against the petitioners were quashed. [Rahul v. State of Karnataka,2018 SCC OnLine Kar 633, dated 04-06-2018]