SKILL LOTTO SOLUTIONS PVT. LTD. v. UNION OF INDIA & ORS.

A paid to the winner of the lottery ticket by the distributer/agent. It has been submitted that in the earlier regime of service tax also for the purposes of computing service tax the value of service tax was taken into account as the total face value of the ticket sold minus the total cost of the ticket and the prize money paid by the distributor. Further, service tax was levied at a miniscule rate of 0.82% and 1.2% as compared to the exorbitant rate of 28% which is being charged now. The question to be answered is that while determining the face value of the ticket for levy of tax the price money of the ticket is to be excluded. The reliance has also been placed on the circular dated 14.02.2007 which provided that the value of taxable service shall be taken into account at the total face value of the ticket sold minus (a) the total cost of the ticket paid by the distributor to the State Government and (b) price money paid by the distributer. Further, reliance has been placed on the Constitution Bench judgment of this Court in M/s. Gannon Dunkerley and co. and others vs. State of Rajasthan and others, 1993(1) SCC 364, where the Constitution Bench laid down that the value of the goods involved in execution of a works contract on which tax is leviable must exclude the charges which appertain to the contract for supply of labour and services. The reliance is placed on paragraph 47 of the judgment which is to the following effect: “45. Keeping in view the legal fiction introduced by the Forty E Sixth Amendment whereby the works contract which are entire and indivisible into one for sale of goods and other for supply of labour and services, the value of the goods involved in the execution of a works contract on which tax is leviable must exclude the charges which appertain to the contract for supply of labour and services. This would mean that labour charges for execution of works item no (i) amounts paid to a sub-contractor for labour and services [item No. (ii), charges for planning, designing and architect’s fees [item No. (iii), charges for obtaining on hire or otherwise machinery and tools used in the execution of a works contact [item No. (iv), and the cost of consumables such as water, electricity, fuel etc. which are consumed in the process of execution of a works contract item No. (v) and other similar expenses for labour and services will have to be excluded as charges for supply of labour and services. ...”

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SKILL LOTTO SOLUTIONS PVT. LTD. v. 193 UNION OF INDIA & ORS. [ASHOK BHUSHAN, J.]

73Copy pinpoint73. We may first notice the statutory scheme under the Act, 2017 A and Rules framed thereunder regarding determination of value of supply. Section 15 of the Act deals with value of taxable supply. Section 15 (1) to (4) which is relevant for the present case is as follows: Section 15.(1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply. (2) The value of supply shall include––– (a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier; D (b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both; E (c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of F goods or supply of services; (d) interest or late fee or penalty for delayed payment of any consideration for any supply; and (e) subsidies directly linked to the price excluding subsidies provided by the Central Government and G State Governments. Explanation.––For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy. H

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A (3) The value of the supply shall not include any discount which is given–– (a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and B (b) after the supply has been effected, if—(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and (ii) input tax credit as is attributable to the discount on the basis of C document issued by the supplier has been reversed by the recipient of the supply. (4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed.” D

74Copy pinpoint74. The Rules have been framed, namely, the Central Goods and Services Tax Rules, 2017 in which Rules by notification dated 23.01.2018 Rule 31A has been inserted dealing with value of supply in case of lottery, betting, gambling and horse racing. Article 31A as was inserted provides as follows: E “Section 31A. Value of supply in case of lottery, betting, gambling and horse racing. - (1) Notwithstanding anything contained in the provisions of this Chapter, the value in respect of supplies specified below shall be determined in the manner provided hereinafter. F (2) (a) The value of supply of lottery run by State Governments shall be deemed to be 100/112 of the face value of ticket or of the price as notified in the Official Gazette by the organising State, whichever is higher. G (b) The value of supply of lottery authorised by State Governments shall be deemed to be 100/128 of the face value of ticket or of the price as notified in the Official Gazette by the organising State, whichever is higher. Explanation:– For the purposes of this sub-rule, the expressions- H

SKILL LOTTO SOLUTIONS PVT. LTD. v. 195 UNION OF INDIA & ORS. [ASHOK BHUSHAN, J.]

(a) —lottery run by State Governments means a lottery not A allowed to be sold in any State other than the organizing State; (b) —lottery authorised by State Governments means a lottery which is authorised to be sold in State(s) other than the organising State also; and B (c) —Organising State has the same meaning as assigned to it in clause (f) of sub-rule (1) of rule 2 of the Lotteries (Regulation) Rules, 2010. (3) The value of supply of actionable claim in the form of chance to win in betting, gambling or horse racing in a race club shall be C 100% of the face value of the bet or the amount paid into the totalisator.”

75Copy pinpoint75. Rule 31A has now been amended vide notification dated 02.03.2020 by which following sub-rule (2) has been substituted: D “Sub-Rule (2). The value of supply of lottery shall be deemed to be 100/128 of the face value of ticket or of the price as notified in the Official Gazette by the Organising State, whichever is higher.”

76Copy pinpoint76. We may first deal with submission of the petitioner based on circular dated 14.02.2007. Circular dated 14.02.2007 was issued when E the service tax was levied on distributor of paper lottery. The circular provided for determination of value of taxable service by deducting total cost of ticket paid by the distributor and price money paid by the distributor, that was regime when it was treated as business auxilliary service rendered by distributor. The said circular has no relevance or application after the 2017 enactment. F

77Copy pinpoint77. We may also refer to Constitution Bench judgment of Gannon Dankerley and Co. (second) where this Court laid down that value of the goods involved in the execution of the works contract on which tax is leviable must exclude the charges which appertain to the contract for supply of labour and services. As noted above in paragraph 47 this Court G noted items which were to be excluded while determining the value of goods involved in the works contract. What was held by this Court in the above case relates to works contract which judgment has no application on the issue which has arisen before us that is abatement of price money while determining the value of the lottery. H

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78Copy pinpoint78. For determining the value of the lottery, now, there is statutory provision contained in Section 15 read with Rule 31A as noted above. Section 15 of the Act, 2017 by sub-section (2) it is provided 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, sub-section (3) of Section 15 provides that what shall not be included in the value of the supply. When there are specific statutory provisions enumerating what should be included in the value of the supply and what shall not be included in the value of the supply we cannot accept the submission of the petitioner that prize money is to be abated for determining the value of taxable 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.

79Copy pinpoint79. 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. Learned Additional Solicitor General has explained the working of Rule 31A of Rules by giving an example: E “For example, if Rs. 100 is the face value of lottery ticket, 28% GST is levied only on Rs.78.125[(100*28)/128]. GST amount will be 21.875. Therefore, Rs.100 includes GST of 21.875 on the taxable value of Rs.78.125. This is a mechanism to split the face value of Rs.100 in two parts (A and B). A is the transaction value. B is GST on A. The formula as above is to come to A by reverse calculation.”

80Copy pinpoint80. 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. 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 the prize money should be excluded. We, thus, conclude that while determining the taxable value of H

SKILL LOTTO SOLUTIONS PVT. LTD. v. 197 UNION OF INDIA & ORS. [ASHOK BHUSHAN, J.]

supply the prize money is not to be excluded for the purpose of levy of A GST.

81Copy pinpoint81. Learned counsel for the petitioner has also relied on various taxing statutes of other countries, wherein the petitioner submits that prize money of the lottery ticket are not being computing for levy of tax. He has referred to provisions of United Kingdom-Value Added Tax, B 1994; Excise Tax Act of Canada; Goods and Services Tax Act of Singapore; Goods and Services Act, 1985 of New Zealand and Sri Lanka- Value Added Tax Act, 2002. When the levy of GST, determination of taxable value are governed by the Parliamentary Act in this country, we are of the view that legislative scheme of other countries may not be relevant for determining the issue which has been raised before us. The C taxing policy and the taxing statute of various countries are different which are in accordance with taxing regime suitable and applicable in different countries. The issue which has been raised before us has to be answered by looking into the statutory provisions of the Act, 2017 and the Rules framed therein which govern the field. D

82Copy pinpoint82. In the foregoing discussion we are of the view that the petitioner is not entitled to reliefs as claimed in the writ petition.

83Copy pinpoint83. We may, however, notice that petitioner has prayed for grant of liberty of challenging the notifications dated 21.02.2020/02.03.2020 by which rate of GST for lottery run by the State and lottery organized by the State have been made the same, which notification has not been challenged in the writ petition since the notifications were issued during the pendency of writ petition. Petitioner has prayed that the said issue be left open, the notification having not been challenged in the writ petition liberty be given to the petitioner to challenge the same in appropriate proceedings. We accept the above prayer of the petitioner. The petitioner shall be at liberty to challenge the notifications dated 21.02.2020/ 02.03.2020 (challenging the rate of levy tax uniformally at 28%) separately in appropriate proceedings. Subject to liberty as above, the writ petition is dismissed. G

Devika Gujral Writ petition dismissed.

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