It is most refreshing, most rejuvenating and most rejoicing to see that a three Judge of the Supreme Court comprising of Justices Ashok Bhushan, R Subhash Reddy and MR Shah in a latest, landmark and laudable judgment titled Skill Lotto Solutions Pvt Ltd vs Union Of India & Ors in Writ Petition (Civil) No. 961 of 2018 delivered on December 3, 2020 has explicitly, elegantly and effectively held that Article 32 is an important and integral part of the basic structure of the Constitution. Article 32 is meant to ensure observance of rule of law. Article 32 provides for the enforcement of the fundamental rights, which is most potent weapon.” There can be no denying it. The petitioner had filed a writ petition under Article 32 of the Constitution challenging the constitutionality of the levy of GST on lotteries.
To start with, this notable judgment authored by Justice Ashok Bhushan for himself, Justice R Subhash Reddy and Justice MR Shah sets the ball rolling by first and foremost observing in para 1 that, “The petitioner, an authorized agent, for sale and distribution of lotteries organized by State of Punjab has filed this writ petition impugning the definition of goods under Section 2(52) of Central Goods and Services Tax Act, 2017 and consequential notifications to the extent it levies tax on lotteries. The petitioner seeks declaration that the levy of tax on lottery is discriminatory and violative of Articles 14, 19(1)(g), 301 and 304 of the Constitution of India.”
To put things in perspective, the Bench then points out in para 2 that, “We need to notice certain background facts which has given rise to this writ petition.
2.1 The Parliament enacted the Lotteries (Regulation) Act, 1998 to regulate the lotteries and to provide for matters connected therewith and incidental thereto. Section 2(b) of the Act defines lottery which provides that “lottery” means a scheme, in whatever form and by whatever name called, for distribution of prizes by lot or chance to those persons participating in the chances of a prize by purchasing tickets. Section 4 provides that a State Government may organise, conduct or promote the lottery subject to conditions enumerate therein. Different States have been organizing and conducting lotteries in accordance with the aforesaid Act. It is to be noted that prior to parliamentary enactment for regulating the lotteries, different States have enacted legislation regulating the lotteries which were the legislations even prior to the enforcement of the Constitution, levying tax on the sale of lottery tickets. Reference is made to Bengal Finance Sales Tax Act, 1941 and Madras General Sales Tax Act, 1939. Another Statute to be noticed is Bombay Lotteries (Control and Tax) and Prize Competitions (Tax) Act, 1958.
2.2 There has been a series of litigation regarding taxability of lottery tickets and this Court had occasion to deliver several judgments on the subject which we shall notice hereinafter. Service tax was levied on lottery tickets by Finance Act, 1994. A Circular dated 14/21.2.2017 was also issued providing for mode of determination of the amount of service tax. Rules were also framed namely Lotteries (Regulation) Rules, 2010 by the Central Government containing a set of rules for regulation of the lotteries organized by the States.
2.3 By Constitution (One Hundred and First Amendment) Act, 2016, Article 246A was inserted in the Constitution containing special provisions with respect to Goods and Services Tax. Article 269A and Article 279A were also inserted by same constitutional amendment. Article 279A provided for constitution of Goods and Services Tax Council. The Parliament enacted the Central Goods and Services Tax Act, 2017 (Act No.12 of 2017) to make provisions for levy and collection of tax on intra-State supply of goods or services or both by the Central Government and for matters connected therewith or incidental thereto. The Act came into force w.e.f. 12.04.2017. The Parliament also enacted the Integrated Goods and Services Tax Act, 2017 (Act No.13 of 2017), the Union Territory Goods and Services Tax Act, 2017 (Act No.14 of 2017) and the Goods and Services Tax (compensation to States) Act, 2017 (Act No.15 of 2017).
2.4 Under Section 2(52) of Central Goods and Services Tax Act, 2017, the term “goods” has been defined which provides that “goods” means every kind of movable property other than money and securities but includes actionable claim……………. Chapter III of the Act provides for levy and collection of tax. Section 15 deals with value of taxable supply. After the enactment of Act No.12 of 2017, Notification was issued by Government of India dated 28.06.2017 in exercise of power conferred by sub-section (1) of Section 9 notifying the rate of the integrated tax. By the notification dated 28.06.2017 with regard to lottery run by the State Government, value of supply of lottery was deemed to be 100/112 of the face value of the ticket or the prize as notified in the official gazette of the organising State, whichever is higher. With regard to lotteries authorised by the State Government value of supply of lottery was deemed to be 100/128.
2.5 The writ petitioner, an authorised agent for the state of Punjab for sale and distribution of lotteries organised by State of Punjab aggrieved by the provisions of Act No.12 of 2017 as well as notifications issued therein filed the present writ petition praying for following reliefs:-
“a) By appropriate writ, order or direction, quash and set aside the definition of ‘Goods’ under Section 2(52) of the Central Goods and Services Tax Act, 2017 [Annexure P-18 (Pg.141 to 143)], Impugned Notifications 01/2017 Central Tax (Rate), 01/2017 [Annexure P-19 (Pg.144 to 148)], Integrated Tax (Rate), 01/201 [Annexure P-20 (Pg. 149 to 154)], and the State rate Notifications of the Respondent State of Punjab [Annexure P-21(Pg.155 to 157)] to the extent it levies tax on Lottery by declaring the same to be discriminatory and violative of Article 49, (19)(1)(g), 301, 304 of the Constitution of India and of the CGST, SGST and IGST Act.
b) In the Alternative, by appropriate writ, order or direction quash and set aside the impugned Notifications 01/2017 Central Tax (Rate), 01/2017 Integrated Tax (Rate) 01/2017 and the State rate Notification of the Respondent State of Punjab to the extent it levies tax on the face value of the lottery ticket without abating the prize money Component of the lottery ticket when the said amount never forms part of the income of the Petitioner or the lottery trade.
c) In the Alternative, by appropriate writ, order or direction quash and set aside the Impugned Notifications 01/2017 Central Tax (Rate), 01/2017 Integrated Tax (Rate) 01/2017 and the State rate Notification of the Respondent State of Punjab to the extent it levies two different rates on tax on the face value of the lottery ticket and declare that the Respondents can levy an uniform rate of 12% Tax on Lottery irrespective of place where it is being sold, and after adjusting the prize money component from the face value of lottery tickets.”
More significantly, the Bench then observes in para 70 that, “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 defines 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. Regulation including taxation in one or other form on the activities namely lottery, betting and gambling has been in existence since last several decades. When the parliament has included above three for purpose of imposing GST and not taxed other actionable claims, it cannot be said that there is no rationale or reason for taxing above three and leaving others.”
Equally significant is what is then stated in para 71 that, “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. The Constitution Bench in State of Bombay Vs. R.M.D. Chamarbaugwala and Anr. (supra) 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. In this country, the aforesaid were never accorded recognition of trade, business or commerce and were always regulated and taxing the lottery, gambling and betting was with the objective as noted by the Constitution Bench in the case of State of Bombay Vs. R.M.D. Chamarbaugwala and Anr. (supra), we, thus, do not accept the submission of the petitioner that there is any hostile discrimination in taxing the lottery, betting and gambling and not taxing other actionable claims. The rationale to tax the aforesaid is easily comprehensible as noted above. Hence, we do not find any violation of Article 14 in Item No. 6 of Schedule III of the Act, 2017.”
As it turned out, the Bench then also made it amply clear in para 80 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. 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 supply the prize money is not to be excluded for the purpose of levy of GST.”
Needless to say, it would be pertinent to mention here that para 81 then states that, “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 KingdomValue Added Tax, 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 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.”
Now coming to the concluding paras. Para 82 states that, “In the foregoing discussion we are of the view that the petitioner is not entitled to reliefs as claimed in the writ petition.” It is then finally held in para 83 that, “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.”
Having said this, it must be said that the cornerstone of this significant judgment is enshrined in para 14 which holds that, “Article 32 confers a right to move to Supreme Court for enforcement of the right conferred by the Part III, which is guaranteed by sub-article (1) of Article 32 of the Constitution. Article 32 is an important and integral part of the basic structure of the Constitution. Article 32 is meant to ensure observance of rule of law. Article 32 provides for the enforcement of the fundamental rights, which is most potent weapon. In the Constituent Assembly Debates, Dr. B.R. Ambedkar speaking about this Article made following statement:-
“If I was asked to name any particular Article in the Constitution as most important…………………… an Article without which the Constitution would be nullity – I could not refer, to any other Article except this one. It is the very soul of the constitution and the very heart of it.””
To sum up, the Apex Court Bench comprising of Justices Ashok Bhushan, R Subhash Reddy and MR Shah have very rightly reiterated once again the unique position of Article 32 which is the cornerstone of our Constitution that, “Article 32 is an important and integral part of basic structure of our Constitution.” It certainly as the Apex Court in this notable judgment is the most potent weapon which provides for the enforcement of the fundamental rights. This alone explains why Dr BR Ambedkar who is the founding father of our Constitution described it as “the very soul of the Constitution and the very heart of it.” This latest judgment also vindicates once again what Dr BR Ambedkar had said a long time back!