Supreme Court Upholds GST on Lottery: Skill Lotto Solutions [2020 INSC 676]

GST on lottery – Supreme Court ruling explained with headnote, key holdings, important paragraphs and FAQs.

The Supreme Court has upheld GST on lotteries, holding that including "actionable claim" in the definition of "goods" in Section 2(52) of the CGST Act, 2017 is neither illegal nor unconstitutional. The Sunrise Associates ruling that a lottery is an actionable claim is binding ratio, not obiter. Taxing only lottery, betting and gambling, while Item 6 of Schedule III leaves other actionable claims out, does not violate Article 14. Prize money is not deductible from taxable value. The writ petition was dismissed, with liberty to challenge the 2020 uniform-rate notifications separately (paras 61–62, 71, 80–83).

Headnote

Goods and Services Tax — Lottery — Actionable claim as "goods" — Constitutional validity, discrimination and valuation — Central Goods and Services Tax Act, 2017, Ss. 2(1), 2(52), 15, Schedule III Item 6; CGST Rules, 2017, R. 31A; Constitution of India, Arts. 14, 32, 246A, 366(12)

A Punjab lottery agent challenged under Article 32 Section 2(52) of the CGST Act and the 2017 rate notifications insofar as they levy GST on lotteries, and sought abatement of prize money. — Held, (i) an Article 14 challenge to a parliamentary Act is maintainable under Article 32; (ii) given the inclusive Article 366(12) and Article 246A, including actionable claims in Section 2(52) is neither illegal nor unconstitutional; (iii) Sunrise Associates holding lottery to be an actionable claim is ratio, not obiter; (iv) taxing only lottery, betting and gambling does not violate Article 14; (v) under Section 15 and Rule 31A, prize money cannot be excluded from taxable value. Writ petition dismissed, with liberty to challenge the notifications dated 21.02.2020/02.03.2020 separately.

(Paras 1–2.5, 12, 16–17, 33–37, 48–49, 58–62, 70–71, 76–83)

Judgment Intelligence

Key Holdings

• A writ petition challenging a parliamentary Act under Article 14 can be entertained under Article 32. The res extra commercium objection failed because no Article 19(1)(g) claim was pressed (paras 13, 16–17).
• Article 366(12) is an inclusive definition that does not exclude actionable claims, and Gannon Dunkerley does not stop Parliament from defining "goods" more widely than the Sale of Goods Act, 1930 (paras 33–34, 37).
• Including actionable claims in "goods" in Section 2(52) is not contrary to the legal meaning of goods and is neither illegal nor unconstitutional, given Parliament's wide power under Article 246A (paras 49, 58–59, 61).
• The Constitution Bench in Sunrise Associates held, as a proposition of law, that a lottery is an actionable claim. That holding is ratio and not obiter dicta (paras 46, 48, 62).
• Taxing lottery, betting and gambling while keeping all other actionable claims out of GST through Item 6 of Schedule III is not hostile discrimination under Article 14 (paras 70–71).
• Prize money is not to be excluded when determining the taxable value of a lottery supply. Value is governed by Section 15 read with Rule 31A, and the 2007 service-tax circular and foreign tax laws are not relevant (paras 76, 78, 80–81).

Brief Facts

The petitioner, an authorised agent for selling and distributing lotteries organised by the State of Punjab, filed a writ petition under Article 32. It challenged the definition of "goods" in Section 2(52) of the CGST Act, 2017 and the consequential notifications, to the extent they levy tax on lotteries, as discriminatory and violative of Articles 14, 19(1)(g), 301 and 304 (para 1). Section 2(52) defines "goods" as every kind of movable property other than money and securities, "but includes actionable claim". Under the notification dated 28.06.2017, the value of supply of a lottery run by a State Government was deemed to be 100/112 of the face value of the ticket or the price notified by the organising State, whichever was higher. For lotteries authorised by a State Government, the figure was 100/128 (paras 2.4, 22).

The petitioner sought to quash Section 2(52), Notifications 01/2017-Central Tax (Rate) and 01/2017-Integrated Tax (Rate), and the Punjab rate notifications, to the extent they tax lottery. In the alternative, it sought abatement of prize money from the face value, or a uniform 12% rate (para 2.5). The ASG objected that lottery is res extra commercium. He also pointed out that Rule 31A had been amended on 02.03.2020 to set a uniform 100/128 valuation (paras 6–7). In rejoinder, the petitioner disclaimed any Article 19(1)(g) or Article 301 claim and reserved its right to challenge the 2020 notifications separately (paras 9–10).

Issue (para 12)

1. Is the writ petition not maintainable under Article 32 because it relates to lottery, which is res extra commercium, and the petitioner cannot claim protection under Article 19(1)(g)?
2. Is the inclusion of actionable claim in the definition of goods in Section 2(52) of the CGST Act, 2017 contrary to the legal meaning of goods and unconstitutional?
3. Did the Constitution Bench in Sunrise Associates, in paragraphs 33, 40, 43 and 48, lay down as a proposition of law that lottery is an actionable claim, or were those observations only obiter dicta?
4. Is the exclusion of lottery, betting and gambling from Item No. 6 of Schedule III of the CGST Act hostile discrimination that violates Article 14?
5. When determining the face value of lottery tickets for levy of GST, is prize money to be excluded?

Court's Findings

Maintainability (Question I): Since the petitioner disclaimed any Article 19(1)(g) claim, that ground was not examined (para 13). A petition alleging that a parliamentary Act violates Article 14 can be entertained under Article 32, and earlier lottery challenges such as the H. Anraj cases were also writ petitions. The preliminary objection was overruled (paras 16–17).

Actionable claim as "goods" (Questions II and III): The Court contrasted Section 2(7) of the Sale of Goods Act, which excludes actionable claims, with Section 2(52) of the CGST Act, which includes them, and noted that Article 366(12) is inclusive (paras 24, 33). It distinguished Gannon Dunkerley as a case about "sale" under a Provincial Legislature's power, and held that Parliament's GST power is plenary (paras 31, 35–37). Sunrise Associates recognised actionable claims as "goods" in the wider sense and held a lottery to be an actionable claim. That conclusion was reached while applying an exclusion in the definition of goods, so it is ratio (paras 42–48). Section 2(52) is in line with that ruling and with Article 246A (paras 48–49, 58–59). The Court accepted that the item taxed must have a rational connection, but held that courts have a very limited role in taxing policy (paras 50–57).

Article 14 and Schedule III (Question IV): Accepting the Ayurveda Pharmacy principle that like commodities need a rational basis for different treatment (paras 64–66), the Court noted that lottery, betting and gambling have been regulated and taxed since before independence and were never recognised as trade or commerce. It held the rationale for taxing them "easily comprehensible" and found no violation of Article 14 in Item 6 of Schedule III (paras 68–71).

Prize money and taxable value (Question V): The 14.02.2007 service-tax circular has no relevance after 2017 (para 76), and the works-contract ruling in Gannon Dunkerley (second) does not apply (para 77). Section 15(2) and 15(3) list what is included in and excluded from value, so no prize-money deduction can be read in (para 78). Under the ASG's Rule 31A example, a Rs. 100 ticket is taxed at 28% on Rs. 78.125, and the GST is Rs. 21.875 (para 79). Foreign VAT and GST laws were held irrelevant (para 81).

Final Outcome / Directions (paras 82–83)

• The petitioner is not entitled to the reliefs claimed in the writ petition (para 82).
• The notifications dated 21.02.2020/02.03.2020, which made the rate the same for lotteries run by a State and lotteries authorised by a State, were issued while the petition was pending and were not challenged in it. The petitioner is at liberty to challenge them, including the uniform 28% levy, separately in appropriate proceedings (para 83).
• Subject to that liberty, the writ petition is dismissed (para 83).

Legal Principle

Under Article 246A, Parliament is not confined to the Sale of Goods Act meaning of "goods". Article 366(12) is inclusive, and actionable claims are "goods" in the wider sense (Sunrise Associates), so Section 2(52) can validly bring lottery into GST as goods. Taxing only lottery, betting and gambling among actionable claims is taxing policy with a discernible rationale and does not violate Article 14. Taxable value is what Section 15 and Rule 31A prescribe, and a deduction the statute does not provide cannot be added by judicial interpretation (paras 49, 58–62, 70–71, 78, 80).

Precedents Relied Upon

• Sunrise Associates v. Govt. of NCT of Delhi, (2006) 5 SCC 603 – Relied upon · Discussed at paras 38–48, 58–59: actionable claims are goods in the wider sense, and a lottery is an actionable claim. This holding is ratio, not obiter.
• State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., (1959) SCR 379 – Distinguished · Discussed at paras 25–37: it dealt with the legal meaning of "sale of goods" under Entry 48 of the Government of India Act, 1935, and does not limit Parliament's power to define goods in the CGST Act.
• H. Anraj v. Government of Tamil Nadu, (1986) 1 SCC 414 – Referred to · Discussed at paras 16, 39–41: held lottery tickets to be goods to the extent of the right to participate in the draw. That view was overruled in Sunrise Associates.
• Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd., (1987) 1 SCC 424 – Relied upon · Discussed at para 33: legislatures use inclusive definitions to enlarge the meaning of words.
• Bhopal Sugar Industries Ltd. v. D.P. Dube, Sales Tax Officer, (1964) 1 SCR 481 – Distinguished · Discussed at paras 50–52: it concerned an extended definition of "sale" beyond a State's competence, not Parliament's GST power.
• Sri Krishna Das v. Town Area Committee, Chirgaon, (1990) 3 SCC 645 – Relied upon · Discussed at para 57: selecting goods or services for taxation is for the legislature, and courts cannot review it.
• Ayurveda Pharmacy v. State of Tamil Nadu, (1989) 2 SCC 285 – Referred to · Discussed at paras 64–66: the Court accepted that there must be a rational basis to treat commodities in the same class differently, but found such a basis existed here.
• State of Bombay v. R.M.D. Chamarbaugwala, AIR 1957 SC 699 – Relied upon · Discussed at paras 68, 71: gambling activities are res extra commercium and have never been recognised as trade or commerce.
• Union of India v. Martin Lottery Agencies Ltd., (2009) 12 SCC 209 – Relied upon · Discussed at para 69: the law, as it stands, recognises lottery as gambling.

Important Paragraphs of the Judgment

Para 49: "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."

Para 61: "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 and is neither illegal nor unconstitutional."

Para 62: "The Constitution Bench judgment of this Court in Sunrise Associates has laid down that lottery is an actionable claim as proposition of law. The observation cannot be said to be obiter dicta."

Para 70: "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."

Para 78: "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."

What the Ruling Means: Practical Impact

• Lottery is taxable as "goods": Distributors cannot argue that lottery falls outside GST because it is an actionable claim (paras 49, 61–62).
• Schedule III selection upheld: Lottery, betting and gambling stay taxable while other actionable claims stay outside GST under Item 6 of Schedule III (paras 70–71).
• No deduction for prize money: As amended on 02.03.2020, Rule 31A deems value to be 100/128 of the face value or notified price, whichever is higher, with no deduction for prize money (paras 75, 78–80).
• Old circulars and foreign models do not help: The 2007 service-tax circular and foreign VAT and GST laws carry no weight under the 2017 Act (paras 76, 81).

Frequently Asked Questions

Did the Supreme Court uphold GST on lottery tickets?

Yes. It upheld the inclusion of actionable claims in the definition of "goods" in Section 2(52) of the CGST Act, 2017 as neither illegal nor unconstitutional, and dismissed the writ petition challenging GST on lotteries (paras 61, 82–83).

Was the Sunrise Associates holding that a lottery is an actionable claim only obiter?

No. The Court held that the Constitution Bench in Sunrise Associates decided, after due consideration, that a lottery is an actionable claim, and that this is the ratio of the judgment (paras 48, 62).

Is it discriminatory to tax only lottery, betting and gambling among actionable claims?

No. Lottery, betting and gambling have long been regulated and taxed, and have never been recognised as trade, business or commerce. The Court found the rationale for taxing them easily comprehensible and found no violation of Article 14 in Item 6 of Schedule III (paras 70–71).

Can prize money be deducted from the face value of a lottery ticket for GST?

No. Value is governed by Section 15 read with Rule 31A, which does not provide for excluding prize money, and courts cannot add such an exclusion by interpretation (paras 78, 80).

What happened to the challenge to the uniform 28% lottery rate?

The notifications dated 21.02.2020/02.03.2020 were issued while the petition was pending and were not challenged in it. The Court gave the petitioner liberty to challenge them separately in appropriate proceedings (paras 10, 83).

Judgment Copy

Judgment PDF: 2020 INSC 676 – Skill Lotto Solutions Pvt. Ltd. v. Union of India (official copy, sci.gov.in)

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