Case BriefsSupreme Court

Supreme Court: While adjudicating the dispute with regard to jurisdiction of CCI to inquire into allegations of bid rigging, collusive bidding, and cartelisation in the tender process for appointment of selling agents and distributors for lotteries organised in the State of Mizoram the Division Bench of Sanjay Kishan Kaul* and M.M. Sundresh, JJ., concluded that,

Lotteries may be a regulated commodity and may even be res extra commercium; that would not take away the aspect of something which is anti-competition in the context of the business related to lotteries.”

Factual Backdrop

A complaint was made by the respondent 4-complainant under Sections 3 & 4 read with Section 19(1)(a) of the Competition Act, 2002 with regard to invitation of expression of interest (EOI) issued by State of Mizoram through respondent 2, the Director, Institutional Finance and State Lottery inviting bids for the appointment of lottery distributors and selling agents for state lotteries.

The complainant contended before the Competition Commission of India (CCI) that there was bid rigging and a collusive bidding process which violated Section 3(1) read with Section 3(3) of the Competition Act, and also caused grave financial loss to the State of Mizoram. The allegation was also made against the State that it had abused its dominant position as administrator of State lotteries, by requiring distributors to furnish exorbitant sums of money towards security, advance payment, and prize pool even before the lotteries were held which was in contravention to Section 4 of the Competition Act.

Action Taken by the CCI

The CCI found that prima facie, there were evidence of cartelisation and bid rigging in contravention of Section 3(1) read with Section 3(3) of the Competition Act. However, the CCI opined that no case was made out against respondent the State as it could not be considered as an ‘enterprise’ or a ‘group’ under the Competition Act. The CCI opined that the State’s role was to regulate and monitor the business of lotteries in the State of Mizoram in exercise of its powers and functions under the Mizoram Lotteries (Regulation) Rules, 2011 framed under the Lotteries (Regulation) Act, 1998. The CCI, thus, rejected the complaint under Section 4 of the Competition Act.

However, with regard to private respondents, CCI required the Director General (DG) to conduct an investigation into the matter. Pursuant to which the DG report revealed that the respondent 5 and 6 along with M/s. Teesta Distributors and M/s. E-Cool Gaming Solutions (P) Ltd. had colluded, formed a cartel, and indulged in bid rigging in violation of Sections 3(1) and 3(3) of the Competition Act. Consequently, the CCI by its order dated 12-02-2013 send copies of the DG report to the parties seeking objections/replies thereto.

Intervention by the High Court

The Bench observed that surprisingly the State had approached the Gauhati High Court challenging both the report of the DG and the CCI’s order for making adverse observations despite the fact that the complainant had failed to establish a prima facie case under Section 4 of the Competition Act. The Bench remarked,

“We say ‘surprisingly’, because if at all, the grievance could have been of respondent 2 qua the observations made, but could not have been of State… In fact, Section 4 proceedings against respondent 1 were already closed.”

The High Court, however, chose to pass an interim order to stay further proceedings before the CCI. Subsequently, by the impugned order the High Court relied on Union of India v. Martin Lotter Agencies Ltd., (2009) 12 SCC 209,  to hold that lotteries, being akin to gambling activities, came under the purview of the doctrine of res extra commercium. The High Court opined that since the Competition Act was applicable to legitimate trade and goods, and was promulgated to ensure competition in markets that are res commercium, the CCI did not have jurisdiction to entertain the complaint of respondent  4.

Whether distribution of lotteries amounts to “Service”?

With regard to the respondents’ claim that they were merely a distributor which did not provide any services to any potential user of lottery and such distribution did not constitute a service under Section 2(u) of the Competition Act, the Bench held that the expansive definition of ‘Service’ under Section 2(u) of the Competition Act means “service of any description”, which is to be made available to potential users. Holding that the purchaser of a lottery ticket is a potential user and a service is being made available by the selling agents in the context of the Competition Act, the Bench concluded that the inclusive mentioning does not inhibit the larger expansive definition.

CCI’s Jurisdiction to entertain issues relating to lotteries

On the contention that Section 3(1) of the Competition Act would have no application as there was no “goods” or “provisions of services” which could give rise to the CCI’s jurisdiction, specifically because lottery tickets were not goods and there was no provision of any services, the Bench observed that lotteries may be a regulated commodity and may even be res extra commercium; that would not take away the aspect of something which is anti-competition in the context of the business related to lotteries. Hence, the Bench concluded,

The lottery business can continue to be regulated by the Lotteries (Regulation) Act, however, if in the tendering process there is an element of anti-competition which would require investigation by the CCI, that cannot be prevented under the pretext of the lottery business being res extra commercium, more so when the State Government decides to deal in lotteries.

Findings and Conclusion

Finding the conduct of the State “very non-appreciable” and intervention by the High Court “extremely premature”, the Bench stated that the State ought to have cooperated with the CCI and the High Court ought to have waited for the CCI to come to a conclusion but on the other hand what had happened was that the CCI proceedings had been brought to a standstill while the High Court opined on the basis of some aspects which may or may not arise. The Bench remarked,

“A simple aspect of anti-competitive practices and cartelisation had got dragged on for almost ten years in what appears to be a mis-application by the High Court of the interplay of the two Acts, i.e., the Competition Act and the Regulation Act.”

Hence, holding that the proceedings before the CCI ought to have been permitted to conclude with the right available to the affected parties to avail of the appellate remedy under Section 53B of the Competition Act, the Bench set aside the impugned judgment and directed to close the proceedings in the case filed by the State while the proceedings against the other parties were directed to continue.

[CCI v. State of Mizoram, 2022 SCC OnLine SC 63, decided on 19-01-2022]


*Judgment by: Justice Sanjay Kishan Kaul


Appearance by:

For the CCI: Rajshekhar Rao, Senior Advocate


Kamini Sharma, Editorial Assistant has put this report together

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