ORDER
A.N. Ray, C.J.
1. This is a writ petition in respect of a letter dated 30-4-2007 written by the Superintendent of Central Excise, Gangtok Range, Gangtok to the writ petitioner, namely, M/s. Martin Lottery Agencies Ltd. The letter is no more than a direction for appearance before the writer of the letter. However, such appearance is directed towards ultimate levy of tax under the Lotteries (Regulation) Act, 1998 No. 17 of 1998, a Central Act, read with the Service Tax provisions which find place in Chapter V of the Finance Act, 1994 and Chapter VA of the Finance Act, 2003.
2. The writ petitioner accordingly has presented this writ petition to nip the whole process in the bud, and has asked for an interim order staying all further proceedings.
The writ petitioner has been in business from 1998 and has been purchasing Sikkim Lottery tickets in bulk.
3. A very important fact about the purchase if not mentioned or even hinted at in the petition at all, and this is, that the purchase of the lottery tickets is made for a price of Rs. 70/- for tickets of the face value of Rs. 100/-. Learned Counsel for the writ petitioner has made this submission on query from Court and, accordingly, it is now to be proceed upon as a fact put forward on behalf of the writ petitioner.
4. The important provision for our purposes in the Finance Act is Section 65 Sub-section 19(i), (ii) and (iii); these are set out below:
(19) “business auxiliary service” means any service in relation to –
(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii) promotion or marketing of service provided by the client; or
(iii) any customer care service provided on behalf of the client; or
5. The next important provision is Section 4(c) of the 1998 Act and the same is set out below:
4. (c) The State Government shall sell the tickets either itself or through distributors or selling agents;
6. The third material provision is the definition of goods in the Sale of Goods Act, 1930 and Sub-section (7) of Section 2 is set out below:
(7) “goods” means every kind of moveable property other than actionable claims and money; and includes stock and share, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale;
7. The submission of the writ petitioner is that the purchase of tickets is on principal to principal basis although it might be at a reduced rate. As such, once the purchase of tickets is complete and the tickets become the property of the writ petitioner fully and in their entirety, no question arises of any promotion or marketing of any goods produced or provided by the State Government still less of marketing any goods belonging to the State Government.
8. Accordingly, the root of the service tax incidence, which is the said Sub-section 19 disappears and service tax cannot be levied because no service could be provided by anybody who is dealing with goods which are fully owned by and fully belong to that person itself.
9. The impugned letter, above referred to, adopts’ the line of reasoning, that the sale of lottery tickets being prohibited except by the Government itself or through distributors or selling agents, the sale of such tickets by the State Government to the writ petitioner must be on the footing that the writ petitioner is a distributor or a selling agent of the State Government, since otherwise it would entail a breach of law both on the part of the State Government and on the part of the purchasing writ petitioner. This is because the writ petitioner admittedly resells the tickets.
10. These points would no doubt have to be considered in the final hearing and there is no question of throwing out the writ petition in limine. Counsel for the Central Government has not even received copies of the papers which, allegedly have been sent by the writ petitioner by post; in any event copies have been handed over to the learned Counsel for the Central Government in Court.
11. Although prima facie, the matters which appear to be important to Court today should also be indicated so that counsel can have advance notice and deal with the said points.
Although goods are purchased outright by the writ petitioner, and are sold thereafter, and on their own, to their contractors who are smaller than the writ petitioner by way of organization, this does not end the problem of deciding whether the writ petitioner is rendering any promotional or marketing service to the Government.
12. Since the sale is taking place as between the State and the writ petitioner, no question of providing any service in relation to the first sale of goods itself arises because the writ petitioner is purchasing the goods itself and not providing for any service in relation to the first purchase of goods from the State by a third party.
13. The issue is whether purchasing at Rs. 70/- goods which are of the face value of Rs. 100/-, and can be sold in the market for that face value, is itself a promotional or marketing service. The contract between a principal producer and its large distributor or promotional distributor can have a lot of flexibility. It will all depend on the business negotiations by the two parties, as to whether the goods are being taken by the distributor as an agent, and retained as such, or whether the goods will be purchased outright by the distributor from the manufacturer, at a reduced price, the distributor thereafter taking all responsibility for the goods purchased, in return for, or in consideration of, the reduction in the wholesale price of goods.
14. If, we repeat if, the writ petitioner is a distributor or a selling agent, then there is no problem, notwithstanding Section 4(c) of the 1998 Act, of the writ petitioner reselling the lottery tickets in the open market even upto the full face value of Rs. 100/-, or for a lesser price but above Rs. 70/- even though it bought the tickets itself for Rs. 70/-. Is this a promotion of the lottery tickets produced or provided by the State? Is it a marketing of lottery tickets produced or provided by the State? If it is not, then what is the difference between a person buying lottery tickets of face value of Rs. 100/- at Rs. 100/- from the State Government directly, and a person who is buying it at a reduced price? Is the reduced price of Rs. 30/- in relation to goods, originally belonging to the State Government, a reduction for the purpose of marketing and further sale, and is it for the purpose of marketing, which the true and core business activity of the writ petitioner? Is the business viability of the writ petitioner dependent only on the middleman succeeding in getting a market for the original goods, and is the margin of 30% sufficient to cover this type of business venture?
15. These questions might merely be asked today but need not be answered today without hearing parties fully.
16. I am of the opinion that on a balance of circumstances it appears that the essence of the writ petitioner’s business venture is that of a middleman, and if it is a middleman’s venture, then the activity, properly so called, cannot but be promotion or marketing.
17. Order and observations, however worded, are without prejudice to the rights and contentions of the parties. There will be no interim order. Appearance of parties before the Department will take place and decisions might be given and even levy might be made. However, decisions given or levies made or moneys paid or receipts given will ultimately abide by the result of the writ. Since both the parties are also solvent, no interim order is called for.
Returnable on 17-9-2007 when further orders might be prayed for by either party.