Supreme Court’s Verdict on GST Levy on Lotteries: Unpacking the Ruling
In a significant legal development, Skill Lotto Solutions Pvt. Ltd., an authorized agent for lottery sales and distribution in Punjab, approached the Supreme Court of India to challenge the definition of ‘goods’ under §2(52) of the Central Goods and Services Tax Act, 2017 (CGST), and certain notifications that levied taxes on lotteries, betting, and gambling. The petitioner contended that the imposition of GST on such activities is not only discriminatory but also violates several articles of the Indian Constitution, including Article 14, 19(1)(g), 301, and 304.
Background
Before the introduction of the Goods and Services Tax (GST), the One Hundred and First Amendment of the Indian Constitution empowered the Central and State governments to levy GST. §2(52) of the CGST Act, 2017, defines ‘goods’ as all movable property, except money and securities, including actionable claims. However, a specific exemption under Entry III of Schedule 6 excludes taxation on all actionable claims, except for lottery, betting, and gambling. The petitioner argued that this exception, which subjects lotteries to GST, violates the constitutional principle of intelligible differentia under Article 14.
Conflict of Definition
The petitioner contended that the definition of ‘goods’ in the CGST Act is in conflict with the definition given in the Indian Constitution (Article 366(12)), which includes all materials, commodities, and articles but does not explicitly mention actionable claims. The petitioner argued that this omission renders the levy of GST on actionable claims, such as lotteries, unconstitutional.
The Supreme Court, however, held that the power of the legislature to make laws under Article 246A of the Constitution is plenary, and the definition of ‘goods’ under the CGST Act is ‘inclusive’ rather than restrictive. The Court clarified that the legislature has the authority to define goods for the purpose of taxation, and the Courts cannot review such decisions.
Reasonable Classification
The petitioner also challenged the discriminatory proviso under Item no. 6, Schedule III of the CGST Act, which exempts certain activities or transactions from GST, including all actionable claims except lottery, betting, and gambling. The petitioner argued that there was no rational basis for this differential treatment.
The Supreme Court, relying on precedents, stated that activities like lottery, betting, and gambling fall under the category of “res extra commercium,” which means they are outside the scope of commercial intercourse, trade, or commerce. The Court cited judgments that emphasized the need to regulate such activities for the welfare of society and to prevent undue financial burden on individuals, as guaranteed by Article 19(1)(g) of the Constitution.
Value of Taxable Supply
The petitioner also challenged Section 15 of the GST Act, which includes prize money while computing the value of taxable supply. The petitioner argued that only the price of the lottery ticket should be considered, not the prize money involved.
The Supreme Court ruled that while determining the taxable value of supply, the prize money cannot be excluded for the purpose of GST levy. The Court held that the value of taxable supply is a matter of statutory regulation and must adhere to the statutory provisions. Therefore, if the statutory scheme includes the prize money, it cannot be excluded through judicial interpretation.
Conclusion
The Supreme Court’s ruling upheld the legality of levying GST on lotteries, betting, and gambling, emphasizing that the definition of ‘goods’ in the CGST Act is within the legislative purview and not in conflict with the Constitution. The Court also endorsed the reasonable classification of goods for taxation purposes, considering the inherent nature of activities like lotteries. Furthermore, the Court clarified that the prize money must be included when computing the taxable value of supply, as per the statutory provisions. The verdict settles the constitutional challenges raised by Skill Lotto Solutions Pvt. Ltd. and affirms the validity of GST on lotteries, betting, and gambling under the prevailing legal framework.
