Lottery distributors are not required to pay the Center's service tax; the Center's appeal was denied in court

The Supreme Court on Tuesday dismissed a petition of the Center regarding the recovery of service tax from lottery distributors. The court held that lottery distributors do not have to pay service tax to the Central Government. A bench of Justice BV Nagarathna and Justice NK Singh was not in favor of the appeal of the Center against the decision of the Sikkim High Court.

Justice Nagarathna, while delivering the verdict, said, "Since there is no agency in this regard, the respondents (lottery distributors) were not liable to pay service tax. However, the respondents will continue to pay the gambling tax imposed by the state under Entry 62 of List II of the Constitution."

The bench said, "Service tax is not leviable on the transaction between the buyer of lottery ticket and the firm... In view of the above discussions, we do not find any merit in the appeals filed by the Union of India and others. Therefore, these appeals are dismissed."

Upholding the Sikkim High Court verdict, the apex court said that only the state government can impose tax on lotteries and not the Centre. The Centre had argued that it was entitled to levy service tax.

The apex court said the high court was right in holding that the lottery falls under the category of "betting and gambling", which is part of Entry 62 of the State List of the Constitution and only the state can tax it. The Centre had moved the apex court in 2013. The high court verdict came on a plea filed by lottery firm Future Gaming Solutions Pvt Ltd.