K. ARUMUGAMversusUNION OF INDIA & OTHERS ETC.

                 [2024] 8 S.C.R. 830 : 2024 INSC 630

                            K. Arumugam
                                   v.
                      Union of India & Others Etc.
                  (Civil Appeal Nos. 2842-2848 of 2012)
                               08 August 2024
[B.V. Nagarathna* and Nongmeikapam Kotiswar Singh, JJ.]

                           Issue for Consideration
       Appellant-assessees purchased Kerala State Lotteries from
       the District Lottery Offices and other States’ lotteries in bulk
       from registered promoters at a discounted rate. The appellant
       subsequently sold them to retailers on an outright sale basis.
       Whether the activity of the appellants-assessees would attract
       service tax within the scope and ambit of Section 65(19)(ii) read
       with Section 65(105)(zzb) of the Finance Act, 1994.

                                  Headnotes†
       Finance Act, 1994 – s.65(19)(ii) r/w. s.65(105)(zzb) – Appellant
       was directed by the Superintendent of Central Excise, Service
       Tax Range, to obtain registration and pay service tax under the
       heading ‘business auxiliary service’ in terms of the provisions
       of the Finance Act, 1994 – Correctness:
       Held: It was opined in Sunrise Associates case that lottery
       tickets can be categorised as actionable claims – On a reading of
       clause (19) of Section 65 of the Finance Act, 1994 and on analyzing
       the same, it is evident that tax on a business auxiliary service is
       relatable to (i) any service concerning promotion or marketing
       or sale of goods, produced or provided by, or belonging to the
       client and (ii) promotion or marketing of service provided by the
       client – The definition of goods has also been noted in clause
       (50) of Section 65 of the Finance Act, 1994 which refers to clause
       (7) of Section 2 of the Sale of Goods Act, 1930 – The expression
       “goods” under the Sale of Goods Act expressly excludes actionable
       claims as well as money – Therefore, lottery tickets would not
       come within the meaning of the expression goods under clause
       (7) of Section 2 of the Sale of Goods Act, 1930, they would also


* Author
[2024] 8 S.C.R.                                                             831

              K. Arumugam v. Union of India & Others Etc.


     not come within the scope and ambit of clause (50) of Section
     65 of the Finance Act, 1994 – If that is so, they would also not
     come within the scope and ambit of clause (19)(i) of Section
     65 of the Finance Act, 1994 – Lottery tickets being actionable
     claims and not being goods within the meaning of sub-clause
     (i) of clause (19) of Section 65 of the Finance Act, 1994, would
     expressly get excluded from the scope of the said provision –
     As far as Explanation added with effect from 16.05.2008 under
     clause 19(ii) of section 65 is concerned, when lottery ticket is
     an actionable claim and not “goods” and is therefore outside the
     scope of sub-clause (i) of clause 19 of Section 65 of the Finance
     Act, 1994, it could not have been included as lottery per se in
     the Explanation to sub-clause (ii) of Clause 19 of Section 65 of
     the Finance Act, 1994 – On a plain reading of the Explanation
     in light of the activity actually carried on by the appellant(s)-
     assessee(s) herein, it becomes clear that the outright purchase
     of lottery tickets from the promoters of the State or Directorate
     of Lotteries, as the case may be, is not a service in relation to
     promotion or marketing of service provided by the client, i.e.,
     the State conducting the lottery – The conduct of lottery is a
     revenue generating activity by a State or any other entity in the
     field of actionable claims – The Explanation, cannot over-ride
     the main text of the provision as the Explanation which was
     sought to remove doubts is in fact contrary to the main provision
     which defines business auxiliary service and also contrary to the
     judgment of this Court in Sunrise Associates case and having
     regard to clause (50) of Section 65 of the Finance Act, 1994 –
     The said Explanation was omitted with effect from 01.07.2010 –
     However, these cases pertain to the period prior to 01.07.2010 –
     Therefore, either under sub-clause (i) of clause (19) of Section 65
     or under the Explanation to sub-clause (ii) of Clause 19 of Section
     65 of the Finance Act, 1994, after it was introduced with effect from
     16.05.2008 and until it was omitted, service tax could not have
     been levied on the promotion or marketing of sale of goods
     or service provided by the client, on the premise that it was a
     ‘business auxiliary service’. [Paras 6.7, 6.8, 6.9, 6.10]

                              Case Law Cited
     Sunrise Associates v. Govt. of NCT of Delhi [2006] Supp. 1 SCR
     421 : (2006) 5 SCC 603 – followed.
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                                  List of Acts
       Finance Act, 1994; Finance Act, 2008; Constitution of India;
       Lotteries Regulation Act, 1998; Kerala State Lotteries and Online
       Lotteries (Regulation) Rules, 2003; Lotteries Regulation Act, 1998;
       Kerala Tax on Paper Lotteries Act, 2005; Sale of Goods Act, 1930.

                               List of Keywords
       Section 65(19)(ii) read with Section 65(105)(zzb) of the Finance
       Act, 1994; Clause (50) of Section 65 of the Finance Act, 1994;
       Lottery tickets; Actionable claim; Business auxiliary service;
       Service tax; Promotion or marketing of service provided.

                              Case Arising From
       CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2842-2848
       of 2012
       From the Judgment and Order dated 19.08.2011 of the High Court
       of Kerala at Ernakulam in WPC No.25131 and 26123 of 2009 and
       WPC No. 6263, 7618, 11585, 13443 and 29499 of 2010
       With
       Civil Appeal Nos. 2781, 2782, 2783, 2841, 2829-2840 of 2012, and
       Civil Appeal No. 9993 of 2024
                           Appearances for Parties
       Vikramjit Banerjee, A.S.G., S. Ganesh, George Poonthottam, Arijit
       Prasad, Sr. Advs., B. Krishna Prasad, M/s. Parekh & Co., Gautam
       Narayan, Ms. Asmita Singh, Anirudh Anand, Tushar Nair, Ms. Rohini
       Musa, Mukunda Rao, Nipun Katyal, Atul Shankar Vinod, Dileep Pillai,
       Kannan Gopal Vinod, M. P. Vinod, Chirag M. Shroff, Dhananjay
       Kataria, Raj Bahadur Yadav, Mukesh Kumar Maroria, A.R. Madhav
       Rao, Arjun Garg, Aakash Nandolia, Ms. Sagun Srivastava, Ms. Kriti
       Gupta, Arvind Kumar Sharma, Ms. Usha Nandini V., Biju P. Raman,
       John Thomas Arakal, Mrs. Nisha Bagchi, Shubhendu Anand, Meru
       Sagar Samantaray, Annirudh Sharma Ii, G. S. Makker, Mukunda
       Rao Angara, Raghvendra Kumar, Anand Kumar Dubey, Nishant
       Verma, Simanta Kumar, Maneesh Pathak, Ms. Harsha Sharma,
       Devvrat Singh, Jainendra Kumar, Varun Singh, Sameer Abhyankar,
       Kushagra Aman, Aakash Thakur, Rahul Kumar, Ms. Ayushi Bansal,
       M/s. Arputham Aruna And Co., C. K. Sasi, Ms. Meena K Poulose,
       Ms. Anupriya, Advs. for theappearing parties.
[2024] 8 S.C.R.                                                         833

              K. Arumugam v. Union of India & Others Etc.


                Judgment / Order of the Supreme Court

                                Judgment
     Nagarathna, J.
     Leave granted in SLP (Civil) No.21584 of 2012.
2.   These appeals are filed by the assessees against the judgments
     of the High Courts of Sikkim and Kerala dated 03.07.2010 and
     19.08.2011 respectively.
3.   In K. Arumugam vs. Union of India, C.A. No. 2842-2848 of 2012,
     the facts are that the appellant is registered with the Directorate of
     State Lotteries in Thiruvananthapuram and has purchased Kerala
     State Lotteries from the District Lottery Offices and other States’
     lotteries in bulk from registered promoters at a discounted rate. The
     appellant contends that this purchase was made on an outright sale
     basis, meaning, they bought all tickets in bulk with no return policy
     (“all sold basis”) and subsequently sold them to retailers, also on an
     outright sale basis. A profit was made from the difference between
     the amount received from retailers and the amount paid to the State
     Government or registered promoters. The sale of lotteries in Kerala
     was regulated by the Kerala State Lotteries and Online Lotteries
     (Regulation) Rules, 2003 framed under Section 12(3) of the Lotteries
     Regulation Act, 1998 and the Kerala Tax on Paper Lotteries Act, 2005.
     3.1 Appellant was directed by the Superintendent of Central Excise,
         Service Tax Range, Palakkad Division, Mettuppalayam Street,
         Palakkad-1, Kerala, to obtain registration and pay service tax
         under the heading ‘business auxiliary service’ in terms of the
         provisions of the Finance Act, 1994. Subsequently, the appellants
         were served notices by the Assistant Commissioner of Central
         Excise demanding details of their lottery purchase since the
         year 2003. In some instances, searches were conducted and
         items, including hard discs, were seized.
     3.2 As a result, the appellant approached the Kerala High Court
         challenging the constitutionality of the Explanation added to
         Section 65 (19) (ii) of the Finance Act, 1994 and all consequential
         steps taken in pursuance thereto. The appellant argued that the
         profit made from the difference between the purchase price and
         the face value of the tickets did not constitute a ‘taxable service’
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            under the relevant provision. It was argued that the activities
            did not constitute a ‘taxable service’. It was also conjunctively
            argued that the Explanation inserted in the year 2008 introduced
            a new concept inconsistent with the main provision and that no
            service tax could be imposed based on this Court’s ruling in
            Sunrise Associates vs. Govt. of NCT of Delhi, (2006) 5 SCC
            603 (“Sunrise Associates”) wherein it was held that lottery
            tickets are not goods but actionable claims. However, the High
            Court of Kerala dismissed the petitions on 19.08.2011. Aggrieved
            by the aforesaid judgment, present appeals are preferred.
       3.3 In the case of Tashi Delek Gaming Sol. Pvt. Ltd. & Anr vs.
           Union of India & Ors., C.A. No.2781 of 2012, the appellant has
           impugned the judgment of the Sikkim High Court, which dismissed
           the appellant’s writ petition challenging the constitutional validity
           of the Explanation to Section 65(19)(ii) introduced by the Finance
           Act, 2008 with effect from 16.05.2008. The appellant in this
           case was appointed as the exclusive statutory marketing agent
           by the State of Sikkim on 24.08.2001, under Section 4(c) of
           the Lotteries Regulation Act, 1998, for the sale of online lottery
           tickets organized by the said State. According to the agreement
           between the appellant and the State of Sikkim, the appellant
           purchased lottery tickets in bulk from the Directorate of Lotteries
           at a price lower than the maximum retail price (MRP). The
           appellant then sold the tickets to distributors, adding a margin
           of 1%, who in turn sold the tickets to retailers, who ultimately
           sold them to the public at the MRP.
       3.4 A letter dated 07.07.2009 was issued to the appellant herein
           by the Office of the Superintendent of Central Excise, Gangtok
           Range, Gangtok, Government of India requesting the appellant to
           submit an application Form ST-1 seeking service tax registration
           under the category “business auxiliary service” as the service
           rendered by the appellant came within the ambit of “business
           auxiliary service” in terms of the Explanation to Section 65(19)
           (ii) of the Finance Act, 2008 and therefore, the appellant was
           liable to pay service tax.
       Aggrieved by the aforesaid communication dated 07.07.2009, a writ
       petition, being W.P.(C) No.21 of 2009 was filed by the petitioner before
       the High Court of Sikkim at Gangtok, challenging the constitutionality
       of the letter dated 07.07.2009 as well as the Explanation to Section
[2024] 8 S.C.R.                                                           835

              K. Arumugam v. Union of India & Others Etc.


     65(19)(ii) inserted by the Finance Act, 2008. Vide impugned judgment
     dated 03.07.2010, the High Court of Sikkim dismissed the writ petition
     filed by the appellant herein.
     3.5 The appellant maintained that the sale of lottery tickets is, in fact,
         an outright purchase and does not involve any service to the
         State in terms of promotion or marketing under the Explanation
         to Section 65(19)(ii) of the Finance Act, 1994 as amended by
         the Finance Act, 2008. The tickets sold were mainly for lotteries
         organized by the States of Kerala and Sikkim as well as the
         Government of Bhutan.
     3.6 The Union of India, on the other hand, argued that the appellants,
         in addition to selling the tickets, provided a service to the
         State by marketing and promoting lotteries, as evidenced by
         the Agreement, including modifications and additions thereto,
         between the appellant and the State of Sikkim dated 24.08.2001,
         09.12.2003, and 18.11.2005. It was contended that the appellant
         was not merely engaged in outright sale of lottery tickets
         simpliciter but rendered expansive services. The Union sought
         to explain that the appellant herein issued advertisements, had
         a right to be consulted in respect of design of a lottery ticket,
         had a say in the matter of arranging and organizing the lottery,
         had been authorized to promote and market the online lottery
         and paid minimum assured revenue of rupees Ten crores per
         annum to the State of Sikkim.
     3.7 It would be relevant to observe that these appellants were/are all
         carrying on the business of buying and selling of lottery tickets.
         They purchased the lottery tickets from the State Governments
         which organized the lotteries and sold the same in various
         other States or in the States where the lottery business was
         organized, through stockists and distributors.
     3.8 The Central Government sought to levy service tax on the
         premise that the activity which the appellants were/are carrying
         on was a business auxiliary service within the definition of Section
         65(19) of the Finance Act, 1994 and therefore, chargeable to
         service tax. The same was resisted by these appellants by filing
         writ petitions before the High Courts.
     3.9 Both the High Courts of Sikkim as well as Kerala have held
         against these appellants and have opined that service tax is
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            leviable on their activity under the nomenclature of business
            auxiliary service. Hence these appeals.
4.     We have heard learned senior counsel Sri S. Ganesh and learned
       counsel Sri A. R. Madhav Rao for the appellants and learned senior
       counsel Sri Arijit Prasad and learned counsel for the respondent –
       Union of India and perused the material on record.
       Points for consideration:
5.     Having heard learned counsel for the respective sides, the following
       questions arise for our consideration:
            1.    Whether the activity of the appellants – assessees
                  would attract service tax within the scope and
                  ambit of Section 65(19)(ii) read with Section
                  65(105)(zzb) of the Finance Act, 1994? If not, what
                  relief(s) the appellants are entitled to?
            2.    What Order?
6.     In order to better understand the controversy in these cases, it would
       be relevant to advert to the provisions of the Constitution as well as
       the provisions of the Finance Act, 1994 (which imposes service tax,
       pertinently on business auxiliary service).
       6.1 Article 246 of the Constitution pertains to the division of subjects
           between the Central (Parliament) and State Legislatures in the
           form of three lists in the Seventh Schedule of the Constitution,
           namely List 1 – Union List, List 2 – State List and List 3 –
           Concurrent List. It would be useful to extract Article 246 of the
           Constitution as under:
                  “246. Subject-matter of laws made by Parliament and
                  by the Legislatures of States.
                  (1)   Notwithstanding anything in clauses (2) and (3),
                        Parliament has exclusive power to make laws
                        with respect to any of the matters enumerated
                        in List I in the Seventh Schedule (in this
                        Constitution referred to as the “Union List”).
                  (2)   Notwithstanding anything in clause (3),
                        Parliament, and, subject to clause (1), the
                        Legislature of any State also, have power to
[2024] 8 S.C.R.                                                             837

              K. Arumugam v. Union of India & Others Etc.


                      make laws with respect to any of the matters
                      enumerated in List III in the Seventh Schedule (in
                      this Constitution referred to as the “Concurrent
                      List”).
                (3)   Subject to clauses (1) and (2), the Legislature
                      of any State has exclusive power to make laws
                      for such State or any part thereof with respect
                      to any of the matters enumerated in List II in the
                      Seventh Schedule (in this Constitution referred
                      to as the “State List”).
                (4)   Parliament has power to make laws with respect
                      to any matter for any part of the territory of India
                      not included in a State notwithstanding that such
                      matter is a matter enumerated in the State List.”
     6.2 Article 248 deals with Residuary power of Legislatures and the
         same reads as under:
                “248. Residuary powers of legislation.
                (1)   Subject to Article 246A, Parliament has exclusive
                      power to make any law with respect to any
                      matter not enumerated in the Concurrent List
                      or State List.
                (2)   Such power shall include the power of making
                      any law imposing a tax not mentioned in either
                      of those Lists.”
     At this stage itself, it may be mentioned that the residuary power is
     reserved to the Parliament to legislate on any subject provided such
     power is not included in either the Concurrent List or the State List.
     6.3 The Finance Act, 1994 was legislated by the Parliament in
         terms of Article 248 of the Constitution of India read with Entry
         97 List 1 which reads as under:
                “97. Any other matter not enumerated in List II or
                List III including any tax not mentioned in either of
                those Lists.”
     It is also pertinent to mention that Entry 92-C of List I which deals
     with taxes on services was inserted by the Constitution (Eighty-eighth
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       Amendment) Act, 2003, but was not notified and was omitted by the
       Constitution (One Hundred and First Amendment) Act, 2016 with effect
       from 16.09.2016. In the circumstances, we observe that the Finance
       Act, 1994 is relatable to Entry 97 of List I of the Seventh Schedule
       of the Constitution. Subsequently, vide the same Constitution (One
       Hundred and First Amendment) Act, 2016, Article 246A was inserted
       as special provision with respect to goods and services tax.
       6.4 For the sake of completion, it would also be relevant to refer
           to Entries 33 and 34 List II. Entry 62 List II (State List) as it
           stood then, deals with taxes on luxuries including taxes on
           entertainment, amusement, betting and gambling, etc. The
           said Entry has subsequently been amended with effect from
           16.09.2016. However, it is not necessary to extract the amended
           Entry as these appeals pertain to the period prior to 01.07.2010.
           Entries 33 and 34 of List II are the regulatory Entries, which
           read as under:
                 “33. Theaters and dramatic performances; cinemas
                      subject to the provisions of entry 60 of List I;
                      sports, entertainments and amusements.
                 34. Betting and gambling.”
       6.5 Reverting to the Finance Act, 1994 and particularly Chapter V
           which deals with Service Tax, the following provisions, which
           are relevant for the purpose of this controversy, could be
           extracted as under:
                 “65. Definitions.—In this Chapter, unless the context
                 otherwise requires.—
                                           xxx
                 65(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
                        Explanation.- For the removal of doubts, it is
                        hereby declared that for the purpose of this
[2024] 8 S.C.R.                                                              839

              K. Arumugam v. Union of India & Others Etc.


                      sub-clause, “service in relation to promotion
                      or marketing of service provided by the client”
                      includes any service provided in relation to
                      promotion or marketing of games of chance,
                      organized, conducted or promoted by the client,
                      in whatever form or by whatever name called,
                      whether or not conducted online, including
                      lottery, lotto, bingo;
                (iii) any customer care service provided on behalf
                      of the client; or
                (iv) procurement of goods or services, which are
                     inputs for the client; or
                      Explanation.- For the removal of doubts, it is
                      hereby declared that for the purposes of this
                      sub-clause, “inputs” means all goods or services
                      intended for use by the client;
                (v)   production or processing of goods for, or on
                      behalf of the client; or
                (vi) provision of service on behalf of the client; or
                (vii) a service incidental or auxiliary to any activity
                      specified in sub-clauses (i) to (vi), such as billing
                      issue or collection or recovery of cheques,
                      payments, maintenance of accounts and
                      remittance, inventory management, evaluation
                      or development of prospective customer or
                      vendor, public relation services, management
                      or supervision,
                and includes services as a commission agent,
                but does not include any activity that amounts to
                “manufacture” of excisable goods.
                                           xxx
                Section 65(50) “goods” has the meaning assigned
                to it in clause (7) of section 2 of the Sale of Goods
                Act, 1930 (3 of 1930)
                                           xxx
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                 Section 66. Charge of service tax – There shall be
                 levied a tax (hereinafter referred to as the service tax)
                 at the rate of twelve per cent of the value of taxable
                 services referred to in sub-clauses (a), (d), (e), (f),
                 (g,) (h), (i), (j), (k), (l), (m), (n), (o), (p), (q), (r), (s),
                 (t), (u), (v), (w), (x), (y), (z), (za), (zb), (zc), (zh), (zi),
                 (zj), (zk),(zl), (zm), (zn), (zo), (zq), (zr), (zs), (zt), (zu),
                 (zv), (zw), (zx), (zy), (zz), (zza), (zzb), (zzc), (zzd),
                 (zze), (zzf), (zzg), (zzh), (zzi), (zzk), (zzl), (zzm), (zzn),
                 (zzo), (zzp), (zzq), (zzr), (zzs), (zzt), (zzu), (zzv),
                 (zzw), (zzx), (zzy), (zzz), (zzza), (zzzb), (zzzc), (zzzd),
                 (zzze), (zzzf), (zzzg,) (zzzh), (zzzi), (zzzj), (zzzk),
                 (zzzl), (zzzm), (zzzn), (zzzo), (zzzp), (zzzq), (zzzr),
                 (zzzs), (zzzt), (zzzu), (zzzv), (zzzw), (zzzx), (zzzy),
                 (zzzz), (zzzza), (zzzzb), (zzzzc), (zzzzd), (zzzze),
                 (zzzzf), (zzzzg), (zzzzh), (zzzzi), (zzzzj), (zzzzk),
                 (zzzzl), (zzzzm), (zzzzn), (zzzzo), (zzzzp),(zzzzq),
                 (zzzzr), (zzzzs), (zzzzt), (zzzzu), (zzzzv) and (zzzzw)]
                 of clause (105) of section 65 and collected in such
                 manner as may be prescribed.
                                              xxx
                 Section 65(105) “taxable service” means any service
                 provided or to be provided,-
                       (a) xxx
                       (zzb) to a client, by any person in relation to
                       business auxiliary service;”
       6.6 It is relevant to note that Section 65(50) of the Finance Act, 1994
           defines goods to have the same meaning assigned to it under
           Clause (7) of Section 2 of the Sale of Goods Act, 1930. Clause
           (7) of Section 2 of the Sales of Goods Act, 1930, reads as under:
                 “2. Definitions.—In this Act, unless there is anything
                 repugnant in the subject or context,—
                                              xxx
                 (7) “goods” means every kind of moveable property
                 other than actionable claims and money; and includes
                 stock and shares, growing crops, grass, and things
[2024] 8 S.C.R.                                                            841

              K. Arumugam v. Union of India & Others Etc.


                attached to or forming part of the land which are agreed
                to be severed before sale or under the contract of sale;”
                                                    (underlining by us)
     6.7 In the case of Sunrise Associates, the Constitution Bench of
         this Court speaking through Ruma Pal, J., opined that lottery
         tickets can be categorized as actionable claims. The relevant
         paragraphs of the said judgment read as under:
                “40. An actionable claim would include a right to
                recover insurance money or a partner’s right to sue
                for an account of a dissolved partnership or the
                right to claim the benefit of a contract not coupled
                with any liability (see Union of India v. Sri Sarada
                Mills Ltd. [(1972) 2 SCC 877] , SCC at p. 880). A
                claim for arrears of rent has also been held to be an
                actionable claim (State of Bihar v. Maharajadhiraja Sir
                Kameshwar Singh [(1952) 1 SCC 528 : 1952 SCR
                889 : AIR 1952 SC 252] , SCR at p. 910). A right to
                the credit in a provident fund account has also been
                held to be an actionable claim (Official Trustee v. L.
                Chippendale [AIR 1944 Cal 335 : ILR (1943) 2 Cal
                325] ; Bhupati Mohan Das v. Phanindra Chandra
                Chakravarty [AIR 1935 Cal 756 : 40 CWN 102] ). In
                our opinion a sale of a lottery ticket also amounts to
                the transfer of an actionable claim.
                41. A lottery ticket has no value in itself. It is a
                mere piece of paper. Its value lies in the fact that
                it represents a chance or a right to a conditional
                benefit of winning a prize of a greater value than the
                consideration paid for the transfer of that chance.
                It is nothing more than a token or evidence of this
                right. The Court in H. Anraj [(1986) 1 SCC 414 : 1986
                SCC (Tax) 190] , as we have seen, held that a lottery
                ticket is a slip of paper or memoranda evidencing the
                transfer of certain rights. We agree.
                42.Webster’s Words and Phrases, Permanent Edn.,
                Vol. 25-A Supplement defines a “ticket” as “a printed
                card or a piece of paper that gives a person a specific
                right, as to attend a theatre, ride on a train, claim
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       or purchase, etc.” The Madras High Court in Sesha
       Ayyar v. Krishna Ayyar [AIR 1936 Mad 225 : ILR 59
       Mad 562 (FB)] also held: (AIR p. 227)
            “Tickets of course are only the tokens of the
            chance purchased, and it is the purchase of
            this chance which is the essence of a lottery.”
       43. The sale of a ticket does not necessarily involve
       the sale of goods. For example, the purchase of a
       railway ticket gives the right to a person to travel by
       railway. It is nothing other than a contract of carriage.
       The actual ticket is merely evidence of the right to
       travel. A contract is not property, but only a promise
       supported by consideration, upon breach of which
       either a claim for specific performance or damages
       would lie (Said v. Butt [(1920) 3 KB 497 : 1920 All ER
       Rep 232] ). Like railway tickets, a ticket to see a cinema
       or a pawnbroker’s ticket are memoranda or contracts
       between the vendors of the ticket and the purchasers.
       Cases on whether the terms specified on such tickets
       bind the purchaser are legion. It is sufficient for our
       purpose to note that tickets are themselves, normally
       evidence of and in some cases the contract between
       the buyer of the ticket and its seller. Therefore a lottery
       ticket can be held to be goods if at all only because
       it evidences the transfer of a right.
       44. The question is, what is this right which the ticket
       represents? There can be no doubt that on purchasing
       a lottery ticket, the purchaser would have a claim to
       a conditional interest in the prize money which is not
       in the purchaser’s possession. The right would fall
       squarely within the definition of an actionable claim
       and would therefore be excluded from the definition
       of “goods” under the Sale of Goods Act and the
       sales tax statutes. This was also accepted in H. Anraj
       [(1986) 1 SCC 414 : 1986 SCC (Tax) 190] when the
       Court said that to the extent that the sale of a lottery
       ticket involved a transfer of the right to claim a prize
       depending on chance, it was an assignment of an
       actionable claim. Significantly in B.R. Enterprises v.
[2024] 8 S.C.R.                                                            843

              K. Arumugam v. Union of India & Others Etc.


                State of U.P. [(1999) 9 SCC 700] construing H. Anraj
                [(1986) 1 SCC 414 : 1986 SCC (Tax) 190] the Court
                said: (SCC p. 746, para 52)
                     “52. So, we find three ingredients in the sale of
                     lottery tickets, namely, (i) prize, (ii) chance, and
                     (iii) consideration. So, when one purchases a
                     lottery ticket, he purchases for a prize, which
                     is by chance and the consideration is the price
                     of the ticket.”
                                             xxx
                51. We are therefore of the view that the decision in
                H. Anraj [(1986) 1 SCC 414 : 1986 SCC (Tax) 190]
                incorrectly held that a sale of a lottery ticket involved
                a sale of goods. There was no sale of goods within
                the meaning of Sales Tax Acts of the different States
                but at the highest a transfer of an actionable claim.
                The decision to the extent that it held otherwise is
                accordingly overruled though prospectively with effect
                from the date of this judgment.”
     6.8 On a reading of clause (19) of Section 65 of the Finance
         Act, 1994 and on analyzing the same, it is evident that tax
         on a business auxiliary service is relatable to (i) any service
         concerning promotion or marketing or sale of goods, produced
         or provided by, or belonging to the client and (ii) promotion or
         marketing of service provided by the client.
     6.9 The definition of goods has also been noted in clause (50) of
         Section 65 of the Finance Act, 1994 which refers to clause (7) of
         Section 2 of the Sale of Goods Act, 1930. The expression “goods”
         under the Sale of Goods Act expressly excludes actionable claims
         as well as money. This Court in Sunrise Associates has held
         that lottery tickets are actionable claims. Therefore, as lottery
         tickets would not come within the meaning of the expression
         goods under clause (7) of Section 2 of the Sale of Goods Act,
         1930, they would also not come within the scope and ambit of
         clause (50) of Section 65 of the Finance Act, 1994. If that is so,
         they would also not come within the scope and ambit of clause
         (19)(i) of Section 65 of the Finance Act, 1994. Lottery tickets
         being actionable claims and not being goods within the meaning
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            of sub-clause (i) of clause (19) of Section 65 of the Finance Act,
            1994, would expressly get excluded from the scope of the said
            provision. In the circumstances, service tax on the promotion or
            marketing or sale of lottery tickets which are actionable claims
            could not have been levied under the said sub-clause.
       6.10 In order to remove the doubt whether service tax could be levied
            on promotion or marketing or sale of lottery tickets under Clause
            19(ii) of Section 65 of the Finance Act, 1994, an Explanation was
            added with effect from 16.05.2008. The Explanation has also been
            extracted above. Although the Explanation is for the purpose of
            removal of doubts, it is relevant to note that what is excluded
            in sub-clause (i) of clause (19) of Section 65 of the Act, namely
            lotteries being actionable claim and not goods, as analysed above,
            is sought to be mentioned as lottery per se in the Explanation.
            Thus, when lottery ticket is an actionable claim and not “goods”
            and is therefore outside the scope of sub-clause (i) of clause 19
            of Section 65 of the Finance Act, 1994, it could not have been
            included as lottery per se in the Explanation to sub-clause (ii)
            of Clause 19 of Section 65 of the Finance Act, 1994 as “service
            in relation to promotion or marketing of service provided by the
            client” including any service provided in relation to promotion or
            marketing of games of chance, organized, conducted or promoted
            by the client, in whatever form or by whatever name called,
            whether or not conducted online, including lottery, lotto, bingo.
       The Explanation sought to bring the activity of sale of lottery tickets
       within sub-clause (ii) of Clause 19 of Section 65 of the Finance Act,
       1994, when it was excluded from sub-clause (i) on account of the
       lottery tickets being interpreted as actionable claims and not goods
       on the premise that it was a service within the meaning of said sub-
       clause. On a plain reading of the Explanation in light of the activity
       actually carried on by the appellant(s)-assessee(s) herein, it becomes
       clear that the outright purchase of lottery tickets from the promoters
       of the State or Directorate of Lotteries, as the case may be, is not a
       service in relation to promotion or marketing of service provided by
       the client, i.e., the State conducting the lottery. The conduct of lottery
       is a revenue generating activity by a State or any other entity in the
       field of actionable claims. The client, i.e., the State is not engaging
       in an activity of service while dealing with the business of lottery.
       Explanation to sub-clause (ii) of Clause 19 of Section 65 of the Finance
[2024] 8 S.C.R.                                                           845

              K. Arumugam v. Union of India & Others Etc.


     Act, 1994 cannot bring within sub-clause (ii) by assuming an activity
     which was initially sought to be covered under sub-clause (i) thereof
     but could not be by virtue of the definition of goods under the very
     same Act read with Section 2(7) of the Sale of Goods Act, 1930. The
     mere insertion of an explanation cannot make an activity a taxable
     service when it is not covered under the main provision (which has
     to be read into the said sub-clause by virtue of the legislative device
     of express incorporation). This is because sale of lottery tickets is not
     a service in relation to promotion or marketing of service provided by
     a client, i.e., the State in the instant case. Conducting a lottery which
     is a game of chance is ex facie a privilege and an activity conducted
     by the State and not a service being rendered by the State. The said
     activity would have a profit motive and is for the purpose of earning
     additional revenue to the State exchequer. The activity is carried out
     by sale of lottery tickets to persons, such as the assessees herein, on
     an outright basis and once the lottery tickets are sold and the amount
     collected, there is no further relationship between the assessees herein
     and the State in respect of the lottery tickets sold. The burden is on
     the assessees herein to further sell the lottery tickets to the divisional
     / regional stockists for a profit as their business activity. This activity
     is not a promotion or a marketing service rendered by the assessees
     herein to the State within the meaning of sub-clause (ii) of Clause 19
     of Section 65 of the Finance Act, 1994. This is because, to reiterate,
     the States are not rendering a service but engaged in the activity
     of conducting lottery to earn additional revenue. Moreover, once the
     lottery tickets are sold by the Directorate of Lotteries—a Department
     of the State, there is transfer of the title of the lottery tickets to the
     appellants, who, as owners of the said lottery tickets, in turn sell them
     to stockists and others. Thus, there is no promotion of the business of
     the State as its agent. Thus, there is no ‘principal—agent’ relationship
     which would normally be the case in a relationship where a business
     auxiliary service is rendered. The relationship between the State and
     the appellants is on a principal to principal basis. Thus, there is no
     activity of promotion or marketing of a service on behalf of the State.
     Neither is the State, which conducts the lottery, rendering a service
     within the meaning of the Finance Act, 1994.
     The Explanation, therefore, cannot over-ride the main text of the
     provision as the Explanation which was sought to remove doubts is
     in fact contrary to the main provision which defines business auxiliary
     service and also contrary to the judgment of this Court in Sunrise
846                                                             [2024] 8 S.C.R.

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       Associates and having regard to clause (50) of Section 65 of the
       Finance Act, 1994.
       No doubt the Explanation was omitted with effect from 01.07.2010.
       However, these cases pertain to the period prior to 01.07.2010.
       Therefore, either under sub-clause (i) of clause (19) of Section 65 or
       under the Explanation to sub-clause (ii) of Clause 19 of Section 65 of the
       Finance Act, 1994, after it was introduced with effect from 16.05.2008
       and until it was omitted, service tax could not have been levied on
       the promotion or marketing of sale of goods or service provided by
       the client, on the premise that it was a ‘business auxiliary service’.
7.     The High Courts have lost sight of the definition of ‘goods’ in clause
       (50) of Section 65 of the Act while interpreting the expression “lottery”.
       As already noted, the definition of ‘goods’ in clause (7) of Section 2 of
       Sale of Goods Act, 1930, that is expressly incorporated in clause (50)
       of Section 65 of the Act, which expressly excludes actionable claims.
       This Court has by the Constitution Bench in Sunrise Associates
       opined that lottery tickets are actionable claims. The High Courts
       have also lost sight of the fact that the sale of lottery tickets by the
       State is a privileged activity by itself and not rendering of a service for
       which the assessees are rendering promotion or marketing service.
8.     In view of the above discussion, the appeals filed by the appellants-
       assessees are liable to be allowed and are allowed by setting aside
       the impugned judgments of the High Courts of Sikkim and Kerala.
9.     Having regard to the mandate of Article 265 of the Constitution of
       India, the appeals are allowed with all consequential reliefs to the
       appellants.
10. It is needless to observe that if any representations are made
    seeking refund of the amounts paid, the same shall be considered
    expeditiously by the concerned departments of the respondents.
       In the facts and circumstances of these matters, there will be no
       order as to costs.

       Result of the case: Appeals by appellants-assessees allowed.



       †
           Headnotes prepared by: Ankit Gyan