Holding

The Supreme Court held that the sole distributors/purchasers of Sikkim lottery tickets are in a principal‑to‑principal relationship with the State, not agents, and therefore the Finance Act amendments cannot levy service tax on their transactions.

Summary

The Union of India challenged the liability of several private companies, including Future Gaming Solutions, to pay service tax on the sale of paper and online lottery tickets for the Government of Sikkim. The High Court of Sikkim had set aside service‑tax notices issued under various amendments to the Finance Act, 1994, holding that the distributors were not agents of the State. The Supreme Court examined the nature of the agreements, the constitutional competence of Parliament to tax betting and gambling activities, and the substance of the relationship between the State and the distributors. It concluded that the distributors purchased tickets at wholesale rates, bore the commercial risk, and resold them on a principal‑to‑principal basis, not as agents rendering a taxable service. Consequently, the Finance Act amendments could not impose service tax on these transactions. The Court dismissed the appeals, upholding the High Court’s orders and confirming that no service tax is payable by the respondents.

Issues considered

The constitutional validity of the Finance Act, 1994 amendments imposing service tax on lottery distributors.
Whether the relationship between the State of Sikkim and the respondents is that of principal‑agent or principal‑principal.
Whether the sale of paper and online lottery tickets constitutes a "taxable service" under the Finance Act.
Whether Entry 62 of List II (betting and gambling) precludes Parliament from levying service tax on lottery activities.
Whether the respondents are liable to pay service tax on the transactions with the State.

Legislation cited

Companies Act, 1956
Constitution (Eighty‑eighth Amendment) Act, 2003
Constitution of Indias. Article 246, s. Article 248
Constitution (One Hundred and First Amendment) Act, 2016
Contract Act, 1872
Finance Act, 1994s. 65(105)(zzzzn), s. 65(19), s. 65B(1), s. 65B(31A), s. 65B(34), s. 65B(44), s. 66B, s. 66D(i), s. 66F, s. 67
Lotteries (Regulation) Act, 1998
Lotteries (Regulation) Rules, 2010
Sale of Goods Act, 1930
Service Tax Rules, 1994s. Rule 7C
Sikkim Lotteries (Prohibition on Running of and Sale of Single Digit and Private Lottery Tickets) Act, 1993

Headnote

Issue for Consideration Matter pertains to the correctness of the judgments of the High Court setting aside various amendments made to the Finance Act, 1994; and whether sole distributor/purchaser of the lottery tickets is liable to pay service tax on the online lottery tickets. Headnotes† Finance Act, 1994 – ss.65(19), 65(105)(zzzzn), 65B(1), 65B(34), 65B(44), 65B(51), 66B, 66D(i), 66F, 65B(31A), 67 – Various amendment to the Finance Act, 1994, time to time – Sale of lottery tickets – Levy of service tax –

Subjects

Paper lotteryOnline lotteryBetting and GamblingService TaxPrincipal‑principal agreementPrincipal‑agent agreementSeventh ScheduleSole purchasers/distributors of lottery ticketsTaxable servicesActionable claimNegative listNoscitur a sociisRes extra commerciumResiduary powerConcept of agencyTransaction in money or actionable claimSale of paper and online lottery ticketsGovernment of Sikkim and lottery distributorsBusiness Auxiliary ServiceLottery being an actionable claimBetting, gambling or lottery

Judgment

[2025] 2 S.C.R. 756 : 2025 INSC 181

Union of India & Others
v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.
(Civil Appeal No(s). 4289-4290 of 2013)
11 February 2025
[B.V. Nagarathna* and Nongmeikapam Kotiswar Singh, JJ.]

Issue for Consideration
Matter pertains to the correctness of the judgments of the High
Court setting aside various amendments made to the Finance
Act, 1994; and whether sole distributor/purchaser of the lottery
tickets is liable to pay service tax on the sale of paper and online
lottery tickets.

Headnotes†
Finance Act, 1994 – ss.65(19), 65(105)(zzzzn), 65B(1), 65B(34),
65B(44), 65B(51), 66B, 66D(i), 66F, 65B(31A), 67 – Various
amendment to the Finance Act, 1994, time to time – Sale of
lottery tickets – Levy of service tax – Government of Sikkim
and lottery distributors, nature of relationship-principal and
principal or principal and agent – Respondents-assessees
engaged in the business of the sale of paper and online lottery
tickets organised by the Government of Sikkim and entered
into agreements with the State – Pursuant to amendment by
the Finance Act, 2003, inclusion of new category of taxable
services-"Business Auxiliary Service" – Issuance of notices
to the respondents by the Service Tax Department, requiring
them to register for payment of service tax on the activity
which the assessees were/are carrying – Series of litigations
wherein the respondents has been challenging the provisions
levying service tax introduced through various amendments
to the Finance Act from 2010-2016, and the High Court has
allowed the petitions – Interference:
Held: In view of the Finance Act, 1994, and the amendments
made, interference with the orders passed by the High Court not
called for – At each stage, the amendments made to the Finance

* Author
[2025] 2 S.C.R. 757

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

Act, 1994, in order to impose service tax on the sole distributor/
purchaser of the lottery tickets has failed – There being no agency
and no service rendered by the respondents-assessees as an
agent to the Government of Sikkim, service tax is not leviable
on the transactions between the purchaser of the lottery tickets-
respondents and the Government of Sikkim – Having regard to
the terms and conditions of the agreement entered into between
the government and the respondents, including the nomenclature
used to describe the respondents, the respondents were not an
agent of the State Government but purchased the lottery tickets
at own risk for the purpose of selling it through stockists, etc. and
unsold lottery tickets had to be returned to the State Government
in order to avoid misuse of the same – Thus, the relationship
was one between a principal and principal and not one between
principal and agent – Amendment was made to s.65(105) by
insertion of clause (zzzzn) which defined “taxable service”, would
in no way detract from the substance of the relationship between
the State Government and the sole distributor or purchaser of
the lottery tickets which is one of principal to principal and not
of principal-agent – Furthermore, the intent of the Parliament
was that any transaction in an actionable claim (lottery being
an actionable claim) would not include an activity carried out for
the distribution of lottery by the distributor – Such activity of the
distributor would not amount to the activity of betting, gambling
or lottery – Although a lottery ticket is nothing but an actionable
claim, the conduct of a lottery scheme is nothing but a betting
and gambling activity – Activity of betting and gambling which
includes conducting of a lottery is regulated under Entry 34-List
II, with Entry 62-List II being the taxation entry – Constitution of
India – Finance Act, 2007 – Finance Act, 2010 – Finance Act,
2012 – Finance Act, 2015 – Finance Act, 2016 – Service Tax
Rules, 1994 – r.7C – Lotteries (Regulation) Act, 1998. [Paras
17.3.1, 17.4, 18.1, 18.3, 18.4-18.7, 19]

Case Law Cited
K. Arumugam v. UOI [2024] 8 SCR 830 : 2024 SCC Online SC
2278 – relied on.
Union of India v. Martin Lottery Agencies Ltd. [2009] 7 SCR 946 :
(2009) 12 SCC 209; State of Haryana v. Suman Enterprises (1994)
758 [2025] 2 S.C.R.

Supreme Court Reports

4 SCC 217; Khoday Distilleries Ltd v. State of Karnataka [1994]
Supp. 4 SCR 477 : (1995) 1 SCC 574; Sunrise Associates v.
Government of NCT of Delhi [2006] Supp. 1 SCR 421 : (2006)
5 SCC 603; Godfrey Philips India Limited v. State of Uttar
Pradesh (2005) 2 SCC 515; Hoechst Pharmaceuticals Ltd. v.
State of Bihar [1983] 3 SCR 130 : (1983) 4 SCC 45; Union of
India v. HS Dhillon [1972] 2 SCR 33 : AIR 1972 SC 1061; B.R.
Enterprises v. State of UP [1999] 2 SCR 1111 : (1999) 9 SCC
700; R.M.D. Chamarbaugwalla v. Union of India [1957] 1 SCR
930 : AIR 1957 SC 628; State of Karnataka v. State of Meghalaya
[2022] 18 SCR 516 : (2023) 4 SCC 416; Bhopal Sugar Industries
Ltd. v. STO [1977] 3 SCR 578 : (1977) 3 SCC 147; Sri Tirumala
Venkateswara Timber and Bamboo Firm v. Commercial Tax
Officer, Rajahmundry [1968] 2 SCR 476 : AIR 1968 SC 784;
Moped India Ltd. v. Assistant Collector of Central Excise, Nellore
[1985] Supp. 1 SCR 954 : (1986) 1 SCC 125; Alwaye Agencies v.
Deputy Commissioner of Agricultural Income Tax and Sales Tax
[1988] 3 SCR 879 : AIR 1988 SC 1250; Snow White Industrial
Corporation v. Collector of Central Excise [1989] 2 SCR 782 :
(1989) 3 SCC 351; M.S. Hameed v. Director of State Lotteries
(2001) 249 ITR 186 (Ker); Ahmedabad Stamp Vendors Association
v. Union of India (2002) 257 ITR 202 (Guj); Bharti Cellular Limited
(Now Bharti Airtel Limited) v. Assistant Commissioner of Income
Tax [2024] 2 SCR 1001 : (2024) 8 SCC 608 – referred to.

Books and Periodicals Cited
Bowstead and Reynolds on Agency, 23rd Edition; Benjamin’s Sale
of Goods, Eleventh Edition, Sweet & Maxwell – referred to.

List of Acts
Constitution of India; Companies Act, 1956; Finance Act, 1994;
Lotteries (Regulation) Act, 1998; Finance Act, 2007; Finance Act,
2010; Finance Act, 2012; Finance Act, 2015; Finance Act, 2016;
Lotteries (Regulation) Rules, 2010; Sikkim Lotteries (Prohibition
on Running of and Sale of Single Digit and Private Lottery Tickets)
Act, 1993; Constitution (Eighty-eighth Amendment) Act, 2003;
Constitution (One Hundred and First Amendment) Act, 2016; Sale
of Goods Act, 1930; Finance Act, 2008; Service Tax Rules, 1994;
Contract Act, 1872.
[2025] 2 S.C.R. 759

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

List of Keywords
Paper lottery; Online lottery; Betting and Gambling; Service Tax;
Principal-principal agreement; Principal-agent agreement; Seventh
Schedule; Sole purchasers/distributors of lottery tickets; Taxable
services; Actionable claim; Negative list; Noscitur a sociis; Res extra
commercium; Residuary power; Concept of agency; Transaction
in money or actionable claim; Service tax; Sale of paper and
online lottery tickets; Government of Sikkim and lottery distributors;
Business Auxiliary Service; Lottery being an actionable claim;
Betting, gambling or lottery.

Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No(s). 4289-
4290 of 2013
From the Judgment and Order dated 29.11.2012 of the High Court
of Sikkim in WP Nos. 23 and 36 of 2011
With
Civil Appeal Nos. 9506-9507 of 2013, Civil Appeal Nos. 2172-
2173 of 2016, Civil Appeal No. 16118 of 2017, Civil Appeal
Nos. 3441, 3444, 3439 and 3442 of 2025 and SLP (C) No.
23945 of 2017

Appearances for Parties
Advs. for the Appellants:
N. Venkatraman, A.S.G., Mukesh Kumar Maroria, H.R. Rao, V.C
Bharathi, Udai Khanna, B.K. Satija, Sarthak Karol, Gurmeet Singh
Makker, B. Krishna Prasad, Raj Bahadur Yadav, Ms. Rohini Musa.
Advs. for the Respondents:
S. Ganesh, Sr. Adv., A.R. Madhav Rao, Arjun Garg, Ms. Kriti
Gupta, Ms. Sagun Srivastav, Brahma Prakash Soni, Ms. Rohini
Musa, Gautam Narayan, Ms. Asmita Singh, Tushar Nair, Anirudh
Anand, Punishk Handa, A.R. Madhav Rao, Mukunda Rao Angara,
Sameer Abhyankar, Ms. Ayushi Bansal, Aryan Srivastava, Ms. Ria
Dhawan, Rahul Kumar, Aakash Thakur, Sarthak Dora, Mukesh
Kumar Maroria, M/s Arputham Aruna and Co.
760 [2025] 2 S.C.R.

Supreme Court Reports

Judgment / Order of the Supreme Court

Judgment

Nagarathna, J.
INDEX*

History of this controversy: ................................................... 5

2012 Amendment: ...................................................................... 15

2015 Amendment: ....................................................................... 20

2016 Amendment: ....................................................................... 23

Submissions before this Court: ................................................. 26

Points for Consideration: ........................................................... 37

Relevant constitutional provisions: ....................................... 38

Relevant Case Law on lotteries: ................................................ 44

B.R. Enterprises: ............................................................. 44

Sunrise Associates: ........................................................ 45

State of Karnataka: ......................................................... 47

K. Arumugam: ................................................................. 47

Legal Framework: ....................................................................... 51

Agreements under consideration: .......................................... 67

Paper Lotteries: .............................................................. 67

Online Computerised Agreement: ................................ 78

Agency: .................................................................................... 83

Case Law: ................................................................................ 90

Agreements: ............................................................................. 105
Controversy between the Parties: ............................................. 113

* Ed. Note: Pagination as per the original Judgment.
[2025] 2 S.C.R. 761

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

Leave granted in SLP (C) No.18565 of 2014; SLP (C) No.30629 of
2014; SLP (C) No.14111 of 2015; SLP (C) No.19200 of 2017 and
SLP (C) No.23945 of 2017.
2. This batch of cases assail various orders of the High Court of Sikkim
passed in several writ petitions which were filed by the respondent-
assesses. The appellant is the Union of India in all these cases
except in SLP (C) No.19200 of 2017. For immediate reference, the
following table which has been provided by learned counsel for the
Union of India would indicate the details:

Sl. Case No(s). Name of the Impugned Amendment
Assessee(s) Judgment Year
No.
& Order
Dated
1 C.A. NOS. 1. F u t u r e G a m i n g 29.11.2012 2010
4289-4290/2013 Solutions Pvt. Ltd.
2. Summit Online Trade
Solutions Pvt. Ltd
2 C.A.NOS. 1. Summit Online Trade 10.05.2013 2010
9506-9507/2013 Solutions Pvt. Ltd.
2. F u t u r e G a m i n g
Solutions India Pvt.
Ltd.
3 SLP(C) No. Future Gaming Solutions 24.09.2013 2012
18565/2014 India Pvt. Ltd.
4 SLP(C) No. Summit Online Trade 13.05.2014 2012
30629/2014 Solutions Private Limited
5 SLP(C) No. Tashi De Lek Gambling 15.07.2014 2012
14111/2015 Solutions Pvt. Ltd.
6 C.A. NOS. 1. Future Gaming & Hotel 14.10.2015 2015
2172-2173/2016 Services Pvt. Ltd.
2. Summit Online Trade
Solutions Pvt. Ltd.
7 SLP(C) No. Future Gaming & Hotel 23.03.2017 2016
19200/2017 Services (P) Ltd.
8 SLP(C) No. Summit Online Trade 23.03.2017 2016
23945/2017 Solutions (P) Ltd.
9 C.A. No. Future Gaming & Hotel 23.03.2017 2016
16118/2017 Services (P) Ltd.
762 [2025] 2 S.C.R.

Supreme Court Reports

2.1 The petitioners before the High Court (respondents-assessees
herein) are companies incorporated as private limited companies
under the Companies Act, 1956. The respondents-assessees
herein are engaged in the business of the sale of paper and
online lottery tickets organised by the Government of Sikkim.
They entered into respective agreements with the State of
Sikkim.
2.2 Since these cases assail the amendments made to the provisions
of the Finance Act, 1994 from time to time commencing from
the year 2012, the factual backdrop of these cases shall be in
accordance with the amendments made to the Act and shall
be stated chronologically.

History of this controversy:
3. The Parliament introduced service tax through the Finance Act, 1994
under Chapter V, which took effect on 01.07.1994. Later, through the
Finance Act, 2003, the Finance Act,1994 was amended to include a
new category of taxable services, namely “Business Auxiliary Service,”
under sub-section (19) of Section 65, effective from 01.07.2003.
Pursuant to this amendment, the Service Tax Department issued
notices to the respondents-assessees herein, under the amended
Finance Act in 2007, requiring them to register under the said Act
for payment of service tax.
3.1 Being aggrieved, the respondents-assessees herein approached
the High Court in W.P. (C) No.19 of 2007, titled Martin Lottery
Agencies Ltd. vs. Union of India, challenging the levy of
service tax upon the sale of lottery tickets. Vide judgement
dated 18.09.2007, the High Court allowed the writ petition filed
by the respondents-assessees herein declaring that service tax
was not payable on the activity undertaken by the respondents-
assessees herein.
3.2 The aforesaid judgment came to be challenged before this Court
in Civil Appeal No.3239 of 2009. During the pendency of the
Civil Appeal, the Finance Act, 1994 was further amended with
the introduction of an “Explanation” to Section 65(19)(ii) of the
Finance Act, 1994. The Explanation is reproduced hereunder: -
“Explanation.- For the removal of doubts, it is hereby
declared that for the purposes of this sub-clause,
[2025] 2 S.C.R. 763

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

“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; [Explanation inserted vide Finance
Act, 2008 w.e.f. 16th May, 2008]”
3.3 In Union of India vs. Martin Lottery Agencies Ltd, Civil
Appeal 3239 of 2009 reported in (2009) 12 SCC 209, this Court
delivered its judgment on 05.05.2009 holding that the High Court
had rightly set aside the notices issued to the respondents-
assessees herein. However, this Court held that the Explanation
to Section 65(19)(ii) of the Finance was a substantive law and
declared it to be prospective in operation. Regarding the validity
of the Explanation, the issue was left open.
3.4 The respondents-assessees herein, again, approached the
High Court by filing Writ Petition (C) No.36 of 2009 titled
M/s. Future Gaming Solutions Pvt. Ltd. vs. Union of India
challenging the validity of the Explanation to Section 65 (19)
(ii) of the Finance Act, 1994. The High Court dismissed the writ
petitions vide judgement dated 30.07.2010. Being aggrieved by
this dismissal, the respondents-assessees herein approached
this Court by filing a Special Leave Petition, being SLP (C)
No.26771 of 2010. The same was converted as a Civil Appeal
No.2782 of 2012.
Recently this Court (this very Bench) in Civil Appeal Nos.2842-
2848 of 2012 titled as K. Arumugam vs. UOI dated 08.08.2024
reported in 2024 SCC Online SC 2278 (“K. Arumugam”) and
batch including Civil Appeal No.2782 of 2012 allowed the
appeals preferred by the respondents-assessees herein and
set aside the order passed by the High Court dated 30.07.2010
and held that 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. 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.
764 [2025] 2 S.C.R.

Supreme Court Reports

3.5 However, during the pendency of the above appeal, the Finance
Act, 1994 again came to be amended with the deletion of the
Explanation to Section 65(19)(ii) and the introduction of a new
category of “taxable service” vide clause (zzzzn) to sub-section
(105) of Section 65 vide the Finance Act, 2010 with effect from
01.07.2010. Clause (zzzzn) to sub-section (105) of Section 65
reads as under:
“(105) “taxable service” means any service
provided or to be provided,- … (zzzzn) to any
person, by any other person, for promotion,
marketing, organising or in any other manner
assisting in organizing games of chance,
including lottery, Bingo or Lotto in whatever form
or by whatever name called, whether or not
conducted through internet or other electronic
networks;”
3.6 Challenging this amended clause (zzzzn) to sub-section (105)
to Section 65 of the Finance Act, 1994, the assesses filed
writ petitions before the High Court. Primarily, the High Court
examined the relevant clauses of the agreements.
3.7 After hearing the rival contentions made by the respective
parties, the High Court allowed the writ petitions i.e., W.P.
(C) No. 36 of 2011 and W.P. (C). No. 26 of 2011 by way of
common judgement and order dated 29.11.2012. The pertinent
findings in the judgement dated 29.11.2012 have been culled
out hereinunder:
a. The High Court took note of the fact that lottery, per se,
falls within the expression “betting and gambling”, which
is considered pernicious in nature. It receives legal validity
only if it is run or authorised by the State Government,
subject to the conditions laid down in Section 4 of the
Lotteries (Regulation) Act, 1998 which is a Central
enactment. The Court further observed that it is the State’s
privilege that can be partially delegated to another party,
provided they adhere to the statutory conditions contained
in the regulatory Act.
b. Although no Entry in any of the Lists of the Seventh
Schedule specifically provides for levying taxes on
[2025] 2 S.C.R. 765

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

lotteries, the power to enact laws for taxing lotteries must
be understood as inherent within the expressions “betting
and gambling,” as lottery activities fall within this category.
c. The High Court noted that betting and gambling itself is
an activity though the lottery ticket is a tangible thing that
carries with it the right to participate in the game of chance.
Thus, all activities right from the publishing of the lottery
tickets to participation in the game of chance, declaration of
draw and even distribution of prize to the winner fall within
the purview of the expression ‘betting and gambling’. Thus
the power to levy tax on the organisation, promotion and
marketing of lottery being an act of betting and gambling
comes within the exclusive domain of Entry 62 - List II of
the Seventh Schedule of the Constitution.
d. The High Court applied the test of the principle of pith
and substance and observed that the power to levy tax
on lotteries, which are considered games of chance and
fall under “betting and gambling” in Entry 62 - List II, lies
exclusively with the State Legislature. Consequently,
Parliament’s authority to impose such a tax under its
residuary power in Entry 97 - List I, read with Article 248
of the Constitution, is excluded. The High Court held that
while Parliament is competent to levy service tax under
Entry 97 – List I, this does not imply that it can impose
such a tax on lotteries, as the power to levy taxes on this
subject has been conferred on the State Legislature in
List II. That the residuary powers of Parliament can only
be exercised when no Entry in any of the Lists provide
a legislative field. Hence, it is the exclusive legislative
domain of the State Legislature to levy tax of any nature
on lotteries by virtue of Entry 62 - List II.
e. The High Court further held that when a distributor
purchases goods at a commercial price, they are not
acting as an agent for the manufacturer.
f. The High Court observed that in the case at hand, the
lottery tickets are sold as goods by the State Government
to the assesses therein at a discounted price of 70 paise
per ticket, compared to the MRP of Re.1. The predominant
766 [2025] 2 S.C.R.

Supreme Court Reports

part of the transaction is a sale of goods. While considering
the 30% discount offered to the respondents-assessees
herein on the MRP, the High Court took note that offering
such discounts is a normal trade practice in any sale
and purchase transaction. If the seller sells the goods at
the MRP to the ultimate consumer, intermediaries must
receive a discount to cover establishment costs, logistics,
and some margin of profit.
g. Upon perusal of various clauses in the agreement, the
High Court observed that the State Government appoints
stockists or distributors to sell the tickets to ultimate buyers,
who purchase them at the MRP. These intermediaries
must be provided discounts from the MRP to cover their
expenses and ensure a profit margin.
h. The High Court also held that the advertisement expenses
incurred for promoting the State lottery are borne by the
respondents-assessees herein to promote their own
business, not as a service to the State Government. Clause
(20) of the agreement further stipulates that the petitioner
therein is solely responsible for incurring all advertising
expenses, including the publication of lottery results.
i. In light of the above observations, the High Court held that
in the case at hand the lottery is organised by the state
government through its various stockists etc. but cannot be
construed to be a service rendered to the State Government.
Hence, the question of service tax does not arise.
3.8 The High Court ultimately concluded as under:
(i) “In the backdrop of discussion on Ground (A) we
have no hesitation to conclude that the activities of
the lottery distributors i.e. the petitioners herein do
not constitute a service and thus beyond the purview
of “taxable service” as statutorily defined under
clause (zzzzn) of sub-section 105 of Section 65 of
the Finance Act, 1994 as amended vide Finance
Act, 2010.
(ii) The activity of promotion, marketing, organizing or
in any other manner assisting in organising game of
[2025] 2 S.C.R. 767

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

chance including lottery is an activity included in the
expression “betting and gambling” as incorporated
under Entry 34 and 62 of List II to Seventh Schedule
of Constitution of India.
(iii) The activity of promotion, marketing, organizing or
in any other manner assisting in organizing game of
chance including lottery being an activity of “betting
and gambling” under Entry 62, List II to Seventh
Schedule of Constitution of India, the State Legislature
alone is competent to levy any tax on such activity
under Entry 62.
(iv) The Parliament has the competence and
jurisdiction to levy taxes on any subject matter
including “service tax” under Entry 97, List I, read with
Article 248 of the Constitution of India except where
such powers are traceable to any of the entries in List
II and III to Seventh Schedule of Constitution of India.
(v) Power to tax the activity of “betting and gambling”
as explained above being within the exclusive domain
of State Legislature under Entry 62, List II, the
Parliament in exercise of its residuary power under
Entry 97, List I to Seventh Schedule of Constitution
of India lacks legislative competence to impose any
tax including “service tax” on such activity.”
3.9 In view of the above conclusions, the petitions were allowed
striking down clause (zzzzn) to sub-section (105) of Section 65
of Finance Act, 1994 as introduced vide Finance Act, 2010 as
ultra vires the Constitution having been enacted in contravention
to Entry 97 - List I to Seventh Schedule read with Article 248 of
Constitution of India. Consequently, all actions of imposing service
tax upon the respondents-assessees herein being distributors
of lottery organized by State of Sikkim were set aside. Since
the respondents-assessees herein had secured registration
and had paid service tax under the impugned provision on their
own, the judgment was to operate prospectively.
3.10 Being aggrieved by the judgement of the High Court of Sikkim
in Writ Petition (Civil) No. 36 of 2011 and other allied writ
768 [2025] 2 S.C.R.

Supreme Court Reports

petitions dated 29.11.2012 allowing the writ petitions filed by the
respondents-assessees herein and striking down clause (zzzzn)
to sub-section (105) of Section 65 of Finance Act, 1994 as
introduced vide Finance Act, 2010 as ultra vires the Constitution
of India being enacted in contravention of Article 248 of the
Constitution of India read with Entry 97 - List I to the Seventh
Schedule thereto and setting aside all consequential actions
of the Revenue in imposing service tax upon the respondents-
assessees herein (distributors of lottery organised by State of
Sikkim), the Revenue has preferred the present Civil Appeal
Nos.4289-4290 of 2013.

2012 Amendment:
4. During the pendency of the matter before this Court, the Finance
Act, 1994, was amended once again by the Finance Act, 2012,
whereby several provisions were introduced giving a new dimension
to the meaning of ‘taxable service’ as services that would be taxable
thereunder. The relevant provisions of the Finance Act, 1994, as
amended, by the Finance Act, 2012, which is effective from 01.07.2012
read as under:-
“65B. In this Chapter, unless the context otherwise
requires,—
(1) “actionable claim” shall have the meaning assigned
to it in section 3 of the Transfer of Property Act, 1882 (4
of 1882);
xxx
(34) “negative list” means the services which are listed
in section 66D;
xxx
(44) “service” means any activity carried out by a person
for another for consideration, and includes a declared
service, but shall not include—
(a) an activity which constitutes merely,—
xxx
(iii) a transaction in money or actionable claim;
[2025] 2 S.C.R. 769

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

(51) “taxable service” means any service on which service
tax is leviable under section 66B;
Charge of service tax on and after Finance Act, 2012.
66B. There shall be levied a tax (hereinafter referred to
as the service tax) at the rate of twelve per cent on the
value of all services, other than those services specified in
the negative list, provided or agreed to be provided in the
taxable territory by one person to another and collected
in such manner as may be prescribed.
Negative list of services. 66D.
The negative list shall comprise of the following services,
namely:—
xxx
(i) betting, gambling or lottery;
xxx”
4.1 On the introduction of the aforesaid amendments the
respondents-assessees herein had intimated to the Revenue
vide letter Ref. No.FGSIPL/SK/0024/ 12-13 dated 28.06.2012
stating that in view of the change in the legal position the
respondents-assessees herein would not be paying service
tax with effect from 01.07.2012.
4.2 In response to the above, the Revenue issued letter C. No.V(3)7/
ST/FGSIPvtLtd/GTK/2009/295 dated 06.07.2012 stating that
as per the Notification. No. 36/2012 ST dated 20.06.2012 read
with Rule 6(7C) of the Finance Act, 1994 (as amended), the
distributor or selling agents are liable to pay service tax at the rate
specified for the taxable service of promoting, organizing or in
any other manner assisting in arranging lottery. Being aggrieved
by this communication dated 06.07.2012 and the Finance Act,
2012, the respondents-assessees herein approached the High
Court by filing Writ Petition No.32 of 2012. The respondents-
assessees herein assailed the Amendment Act of 2012 on the
various grounds.
4.3 After hearing the rival parties, the High Court allowed the writ
petition filed by respondents-assessees herein before the
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High Court vide order dated 24.09.2013 and set aside the
amendments in 2012 made to the Finance Act, 1994. The
relevant findings of the High Court are as follows:
a. The High Court held that the lottery being an ‘actionable
claim’ does not fall within the purview of the service tax
laws as introduced by the new provisions of the Finance
Act, 2012.
b. The High Court found no change in the circumstance as
regards the position found in the earlier issues set out
above except that clause (zzzzn) of sub-section (105) of
Section 65 of the Finance Act, 2010, and the replaced
service tax law regime under the Finance Act, 2012, in the
form of Section 65B and sub-sections thereunder, Sections
66B and 66D were already dealt with earlier.
c. The High Court observed that even under sub-section (34)
of Section 65B read with Sections 66B and 66D lottery
stands excluded from the purview of service tax under
the Finance Act, 2012 as being one in the ‘negative list’;
d. Further, the High Court held that activities comprising of
promotions, organising, reselling or any other manner
assisting in arranging of lottery tickets of the State
Lotteries do not establish the relationship of a principal
or an agent but rather that of a buyer and a seller. This
was in view of the nature of the transaction consisting
of bulk purchases of lottery tickets by the respondents-
assessees herein from the State Government on full
payment on a discounted price as a natural business
transaction and other related features like there being
no privity of contract between the State Government and
the stockists, agents, resellers under the respondents-
assessees herein.
Thereafter, following the order dated 24.09.2013, the High Court
passed orders dated 13.05.2014 and 15.07.2015.
4.4 Being aggrieved by the orders passed by the High Court dated
24.09.2013, 13.05.2014 and 15.07.2015 the Union preferred
SLPs before this Court being SLP (C) No.18565 of 2014, SLP (C)
No.30629 of 2014 and SLP (C) No.14111 of 2015, respectively.
[2025] 2 S.C.R. 771

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

2015 Amendment:
5. The Parliament again made amendments to the Finance Act,
1994 vide the Finance Act, 2015 The amendment is extracted as
below:
“65B. In this Chapter, unless the context otherwise
requires,—
xxx
(31A) “lottery distributor or selling agent” means a person
appointed or authorised by a State for the purposes of
promoting, marketing, selling or facilitating in organising
lottery of any kind, in any manner, organised by such
State in accordance with the provisions of the Lotteries
(Regulation) Act, 1998 (17 of 1998);
xxx
(44) “service” means any activity carried out by a person
for another for consideration, and includes a declared
service, but shall not include— (a) an activity which
constitutes merely,—
xxx
(iii) a transaction in money or actionable claim;
xxx
Explanation 2.—For the purposes of this clause, the
expression “transaction in money or actionable claim”
shall not include—
xxx
(ii) any activity carried out, for a consideration, in relation
to, or for facilitation of, a transaction in money or actionable
claim, including the activity carried out—
(a) by a lottery distributor or selling agent in relation
to promotion, marketing, organising, selling of lottery
or facilitating in organising lottery of any kind, in any
other manner;
xxx
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Negative list of services.
66D. The negative list shall comprise of the following
services, namely:—
xxx
(i) betting, gambling or lottery;
Explanation.—For the purposes of this clause, the
expression “betting, gambling or lottery” shall not include
the activity specified in Explanation 2 to clause (44) of
section 65.
xxx
Valuation of taxable services for charging service tax:
67. (1) Subject to the provisions of this Chapter, service
tax chargeable on any taxable service with reference to
its value, then such value shall,— (i) in a case where the
provision of service is for a consideration in money, be the
gross amount charged by the service provider for such
service provided or to be provided by him;
xxx
Explanation.—For the purposes of this section,— (a)
“consideration” includes—
xxx
(iii) any amount retained by the lottery distributor or selling
agent from gross sale amount of lottery ticket in addition to
the fee or commission, if any, or, as the case may be, the
discount received, that is to say, the difference in the face
value of lottery ticket and the price at which the distributor
or selling agent gets such ticket.”
5.1 The aforesaid amendments were challenged by the respondents-
assessees herein before the High Court by filing W.P. (C) No.
39 of 2015 and W.P. (C) No. 40 of 2015. By the impugned order
and judgement dated 14.10.2015, the High Court allowed the
writ petitions filed by the respondents-assessees herein and
held as under:
a. The respondents-assessees herein, in buying and selling
the lottery tickets are not rendering any service to the
[2025] 2 S.C.R. 773

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

State and therefore, their activity does not fall within the
meaning of ‘service’ as provided under clauses (31A) and
(44) of Section 65B and, therefore, outside the purview of
Explanation 2 to the said Section;
b. In any case, since by the Explanation the scope of
Section 66D which is the main provision which is sought
to be expanded, is ultra vires the Finance Act, 1994, it is
accordingly struck down;
5.2 Being aggrieved by this impugned order and judgment dated
14.10.2015, the Union of India approached this Court by filing
Civil Appeal Nos.2172-73 of 2016.

2016 Amendment:
6. In the meantime, the Parliament came out with an amendment to
the Finance Act, 2016 to the following effect:
“In Section 65B- (b) in clause (44), in Explanation, 2, in
sub-clause (ii), for item (a), the following item shall be
substituted, namely- (a) by a lottery distributor or selling
agent on behalf of the State Government, in relation to
promotion, marketing, organizing, selling of lottery or
facilitating in organizing lottery or any kind, in any other
manner, in accordance with the provisions of the Lottery
(Regulation) Act, 1998.”
6.1 Again, this amendment to the Finance Act, 2016 was challenged
before the High Court of Sikkim by the respondents-assessees
herein in Writ Petition No. 34 of 2016 and Writ Petition No.48
of 2016.
6.2 The High Court vide impugned order and judgement dated
23.03.2017 allowed the writ petitions and held that the
amendments carried out by the Finance Act, 2016, are not
capable of being implemented for imposition and levy of service
tax on the services allegedly provided by the respondents-
assessees herein. The salient findings of the High Court are
as follows:
a. The High Court held that taxation is a distinct matter for the
purpose of legislative competence and it must flow from
the specific Entry provided for levy and imposition of taxes.
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b. The relevant service tax leviable is on promotion, marketing,
organizing, selling of lottery or facilitating in organizing
lottery of any kind, in any other manner. The Union
Parliament is conferred with the power and competence
under Article 268A read with Entry 97 - List I (Union List)
to impose and levy service tax on other related activities.
Hence, the High Court noted that the impugned amendment
brought in Finance Act, 2016 is not unconstitutional.
However, the Court noted that the Division Benches of
the High Court in W.P.(C) Nos.36 & 23 of 2011 (Future
Gaming Solutions Pvt. Ltd. vs. Union of India); W.P.(C)
No.32 of 2012 (Future Gaming Solutions India Pvt. Ltd.
vs. Union of India) and W.P.(C) No.39 of 2015 (Future
Gaming & Hotel Services Pvt. Ltd. vs. Union of India)
have categorically held that the Union-Parliament lacks
competence to impose service tax and the concerned
amendments were held as ultra vires to the Constitution
of India. This issue has attained finality and was pending
for consideration at that time before this Court.
c. There is no mechanism to ascertain and compute the
service rendered by a person for promoting, marketing,
selling or facilitating in organizing a lottery of any kind, in
any manner, organized by such State in accordance with
the provisions of the Lotteries (Regulation) Act, 1998.
6.3 Being aggrieved by the above-impugned judgement and order
dated 23.03.2017, the Union of India has approached this
Court in SLP (C) No.23945 of 2017 and SLP (C) No. 16118
of 2017. Being aggrieved by the specific findings in judgment
dated 23.03.2017 wherein the High Court held that there was
no mechanism or methodology to ascertain and compute
the services rendered by the respondent-assessees, the
respondent-assessee has filed SLP (C) No.19200 of 2017.

Submissions before this Court:
7. Learned Counsel for the Revenue, Sri Chandrashekara Bharathi
made the following submissions:
a. The statutory framework governing lotteries, particularly the
Lotteries (Regulation) Act of 1998 (“Lotteries Act”, for short)
[2025] 2 S.C.R. 775

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

and related rules, mandate that the organizing State must be
the ultimate seller of lottery tickets to the public, inherently
establishing an agency relationship between the State of
Sikkim and the respondents-assessees herein in these cases.
Article 246(1) of the Indian Constitution empowers Parliament
to legislate on lotteries conducted by the government, which it
exercised by enacting the Lotteries Act. Section 4(c) of this Act
prescribes that the State government must sell tickets “either
itself or through distributors or selling agents.” Further, Rule 2(1)
(c) of the Lotteries (Regulation) Rules, 2010 (“Lotteries Rules”,
for short) defines a “distributor or selling agent” as an entity
appointed by the organizing State to sell tickets on behalf of the
State. Learned counsel argued that the use of terms such as
“through” and “on behalf of” in the statute is conclusive evidence
of the intended agency relationship, as these terms denote that
the respondents-assessees herein are merely facilitating sales
on behalf of the State, not as independent principals.
b. The judgment in State of Haryana vs. Suman Enterprises,
(1994) 4 SCC 217 held that a State-organized lottery requires the
State to retain core control to protect public trust in the scheme.
In that case, this Court stated four essential characteristics
that distinguish a State-organized lottery: (i) tickets must bear
the State’s logo, be printed under the State’s authority, and be
sold directly by the State or its designated agents; (ii) the sale
proceeds must be credited to the State’s funds; (iii) draws must
be conducted by the State; and (iv) unclaimed prize money must
revert to the State. By retaining control over these aspects, the
State ensures that the public’s trust in the lottery’s fairness and
legitimacy is maintained. That these characteristics form the
backbone of the Lotteries Act, and when combined with statutory
language, they mandate an agency relationship between the
respondents-assessees herein and the State, which cannot be
unilaterally recharacterized as principal to principal.
c. The State of Sikkim’s monopoly over the lottery business in
the region, as enacted under the Sikkim Lotteries (Prohibition
on Running of and Sale of Single Digit and Private Lottery
Tickets) Act, 1993, further supports the agency interpretation.
Learned counsel cited Khoday Distilleries Ltd vs. State of
Karnataka, (1995) 1 SCC 574 and argued that the State can
776 [2025] 2 S.C.R.

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either conduct the monopoly business itself or do so through
agents but cannot delegate its core functions to independent
entities without compromising the monopoly. The counsel argued
that in lotteries, as in the sale of alcohol monopolized by the
State, the organizing State cannot delegate its position as the
primary seller and principal.
d. As per clauses in the agreements between the State of Sikkim
and the respondents-assessees herein, specifically focusing
on clauses that indicate a principal-agent relationship, two
critical “condition precedents” that help determine whether an
agency exists are, namely, (i) the capacity in which the sale
is conducted, i.e., whether the respondents-assessees herein
are selling the tickets as their own or on behalf of the State;
and (ii) the allocation of risk and reward, which lies with the
principal in an agency relationship.
e. Various versions of agreements between the State and the
respondents-assessees herein, notably those signed in 2004,
2008 and 2009 were referred to. Initially, under the 2004
agreement, the respondents-assessees herein purchased lottery
tickets on an “all sold” basis, meaning they bought all tickets
upfront and assumed the associated risk. However, subsequent
amendments, particularly in 2008 and 2009, shifted this
arrangement to an “actual sold” basis, where the respondents-
assessees herein took delivery of the tickets without upfront
payment, returning unsold tickets to the State. Additionally,
the State’s revenue became tied to the actual sales made by
the respondents-assessees herein rather than a fixed sum,
indicating that the State retained the risk and reward from ticket
sales, characteristic of a principal-agent relationship.
f. For online lotteries, the agreements did not involve any physical
transfer of tickets to the respondents-assessees herein. Instead,
tickets were directly sold by the State to customers through
computer terminals managed by the respondents-assessees
herein. Learned counsel argued that this arrangement further
underscored the agency relationship, as the respondents-
assessees herein merely facilitated sales made by the State, with
the State bearing the risk associated with prize payouts. It was
emphasised that the respondents-assessees herein received
[2025] 2 S.C.R. 777

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

a commission calculated as a percentage of total sales after
deducting the State’s revenue and prize distributions, which
aligns with compensation typically earned by agents.
g. Further, the respondents-assessees’ argument before the High
Court was that they occasionally incurred losses due to unsold
tickets or fluctuating demand, thereby bearing risk and acting as
principals. Learned counsel for the Revenue sought to rebut this
contention by submitting that under the amended agreements,
unsold tickets were returned to the State, with no financial
obligation on the part of the respondents-assessees herein. In
online lotteries, while the respondents-assessees herein may
have to temporarily cover prize payouts under INR 10,000/-
the risk ultimately remained with the State, which controlled
the final prize distribution. That occasional operational costs
borne by the respondents-assessees herein, such as those
related to maintaining terminals or sub-agent commissions,
were incidental to their role as agents and did not alter the
fundamental agency relationship.
h. Learned counsel for the Revenue thus concluded that both
statutory requirements and the practical structure of the
agreements compel the interpretation of the respondents-
assessees’ role as agents of the State of Sikkim. He asserted that
these agreements, along with judicial precedents and statutory
provisions, leave no room for a principal-principal relationship.
By mandating that the State remains the ultimate seller and by
ensuring that risk and reward lie with the State, the Lotteries Act
and the related legal framework firmly establish respondents-
assessees’ position as agents acting on behalf of the State.
Accordingly, it was urged that service tax, calculated on the
basis of services provided, should apply to the respondents-
assessees herein as agents in line with the legislative intent
and legal precedent.
8. Per contra, Sri S Ganesh, learned senior counsel and Sri A.R. Madhav
Rao, learned counsel appearing for the respondents-assessees
broadly advanced the following submissions:
a. The respondents-assessees herein in these cases operated
independently on a principal-to-principal basis and the agreement
between the State and the respondents-assessees herein is
778 [2025] 2 S.C.R.

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structured in a way that reflects a buyer-seller relationship and
not an agency.
b. The respondents-assessees herein are mandated to pay
a guaranteed minimum amount of Rs.8 crores to the State
Government irrespective of the number of tickets sold.
Additionally, the respondents-assessees herein have to furnish
a bank guarantee to secure payment. The State does not
indemnify the respondents-assessees herein, in case of any
loss. Therefore, indemnification being a hallmark of agency but
in the instant cases, the respondents-assessees herein are
bearing all the financial risk and the State Government does
not indemnify the respondents-assessees herein, then the
relationship between the parties has to be principal to principal.
c. Once the respondents-assessees herein purchase tickets
from the State, it sells them onward at its discretion to sub-
contractors or stockists. The sale proceeds exclusively belong
to the respondents-assessees herein. The State government
has no privity of contract with the sub-distributors. Therefore,
it was argued that the respondents-assessees herein are not
operating on behalf of the State Government.
d. That the respondents-assessees herein bear the entire cost
of marketing and advertising without reimbursement from the
State Government. Further, the respondents-assessees herein
appoint stockists and sellers independently at its own risk.
Hence, there is no notion of agency involved.
e. Thus, service tax under the Finance Act, 1994 does not arise
in the present case since no service is being provided by
the respondents-assessees herein. It was argued that the
respondents-assessees herein are involved in a purchase and
resale arrangement.
f. In K. Arumugam, this Court held that buying lottery tickets and
reselling them does not amount to marketing services.
g. Section 67 of the Finance Act requires service tax to be made
applicable only when there is consideration for a specific service.
In the present case, the margins earned by the respondents-
assessees herein do not represent any commission or service.
There is no service or consideration in the present case as the
[2025] 2 S.C.R. 779

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

transaction is an outright sale at a price lower than the maximum
price of each lottery ticket.
h. Lottery tickets constitute actionable claims and thus transactions
involving actionable claims are exempted under Section 66D of
the Finance Act, 1994. The argument of the Revenue that the
lottery ticket is actionable only in the hands of the ultimate buyer
is false and baseless. In response, it was submitted that the
nature of tickets remains unchanged regardless of ownership,
as established in Sunrise Associates vs. Government of
NCT of Delhi, (2006) 5 SCC 603, (“Sunrise Associates”).
i. That levy of service tax on lottery distributors infringes the
State government’s exclusive power to legislate on “betting
and gambling” under Entry 62 - List II of the Constitution,
Buttressing his submissions, learned senior counsel relied on
Godfrey Philips India Limited vs. State of Uttar Pradesh,
(2005) 2 SCC 515 emphasizing that Parliament cannot use
a residuary entry under Entry 97 - List I to impose taxes on
subjects reserved for the States.
j. That aspects theory cannot be applied to the present case to
justify service tax. The sale of lottery tickets is a single transaction
and cannot be split artificially into a sale and a service.
k. Taxing such transactions as services would create uncertainty
for other industries. If every resale of goods could be labelled
as a service, it would disrupt the established business practices
across sectors.
9. Learned counsel for Union of India addressed and rebutted several
contentions made by the respondents-assessees herein to support
their claim of operating as principals. One of the key arguments by the
respondents-assessees herein was that they were in the “business” of
buying and selling lottery tickets, and therefore should be considered
independent principals. Learned counsel countered this by referring
to Sunrise Associates, which held that the purchase of a lottery
ticket confers a conditional interest in the prize money (an actionable
claim) to the buyer. Since the respondents-assessees herein do
not possess any actionable claim (as they cannot participate in the
lottery), they cannot be classified as true “buyers” of lottery tickets.
Thus, they are limited to selling tickets only as agents of the State.
780 [2025] 2 S.C.R.

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Points for Consideration:
10. The following points would arise for our consideration:
a) Whether the impugned judgments of the High Court of Sikkim
would call for any interference in these appeals?
b) If not, what order?
At this stage, we state that we need not go into the question regarding
the aspect theory/doctrine being made applicable to these cases.
This is because we are dealing with the question whether service
tax is liable to be paid by the respondent-assessees. According to
the appellant- Union of India they are liable to pay service tax as
they are rendering a service to State of Sikkim as an agent. On the
other hand, it is the case of the respondent-assessees that they are
not agents of the Government of Sikkim but their relationship is on
principal to principal basis. If we hold that the relationship between the
State of Sikkim is of principal-agent then the respondents-assessees
herein are liable to pay service tax as an agent. However, this does
not detract from the respondent-assessees being liable to pay tax
on gambling as the conduct of lotteries is nothing but a gambling
activity as per Entry 62 – List II of the Seventh Schedule of the
Constitution of India. Therefore, it is necessary for us to consider
whether the respondents-assessees are engaged as agents by the
principal-Government of Sikkim or the relationship is one of principal
to principal.

Relevant constitutional provisions:
11. 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 along with the amendments
made which have sought to impose service tax on the respondents-
assessees herein in these cases.
11.1 Article 246 of the Constitution of India pertains to the division of
subjects between the Parliament and State Legislatures in the
form of three lists in the Seventh Schedule of the Constitution,
namely List I – Union List, List II – State List and List III –
Concurrent List. It would be useful to extract Article 246 of the
Constitution as under:
[2025] 2 S.C.R. 781

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

“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 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.”
11.2 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.
11.3 The Finance Act, 1994 was enacted by the Parliament in terms
of Article 248 of the Constitution of India read with Entry 97 -
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List I 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.”
11.4 It is also pertinent to mention that Entry 92-C - List I which
deals with taxes on services was inserted by the Constitution
(Eighty-eighth 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 - List I. Subsequently, vide the same
Constitution (One Hundred and First Amendment) Act, 2016,
Article 246A was inserted as a special provision with respect
to goods and services tax.
11.5 For the sake of completion, it would also be relevant to refer
to Entries 33 and 34 - List II. Entries 33 and 34 - 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.”
11.6 Entry 62 - List II (State List) as it stood then, dealt 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 16.09.2016. Entry 62-List II is a taxation
Entry. The unamended Entry 62-List II is extracted as under:
“62. Taxes on luxuries, including taxes on entertainments,
amusements, betting and gambling.”
11.7 In Hoechst Pharmaceuticals Ltd. vs. State of Bihar, (1983) 4
SCC 45, it has been observed that taxation is a distinct matter
for purposes of legislative competence. There is a distinction
made between general subjects of legislation and taxation. The
general subjects of legislation are dealt with in one group of
entries and power of taxation in a separate group. The power
[2025] 2 S.C.R. 783

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

to tax cannot be deduced from a general legislative entry as
an ancillary power.
11.8 In Union of India vs. HS Dhillon, AIR 1972 SC 1061, it was
observed that the function of Article 246(1), read with Entries
1-96 - List I, is to give positive power to Parliament to legislate in
respect of these entries. Object is not to debar Parliament from
legislating on a matter, even if other provisions of the Constitution
enable it to do so. Accordingly, it cannot be interpreted that the
words “any other matter” occurring in Entry 97 - List I, to mean
a topic mentioned by way of exclusion. These words really refer
to the matters contained in each of the Entries 1 to 96. The
words “any other matter” had to be used because Entry 97 - List
I follows Entries 1-96 - List I. It is true that the field of legislation
is demarcated by Entries 1-96 - List I, but demarcation does
not mean that if Entry 97 - List I confers additional powers, we
should refuse to give effect to it. At any rate, whatever doubt
there may be on the interpretation of Entry 97, List I is removed
by the wide terms of Article 248. It is framed in the widest
possible terms. On its terms the only question to be asked is:
Is the matter sought to be legislated or included in List II or in
List III or is the tax sought to be levied mentioned in List II or in
List III: No question has to be asked about List I. If the answer
is in the negative then it follows that Parliament has power to
make laws with respect to that matter or tax.
According to this Court, if a Central Act is challenged as being
beyond the legislative competence of Parliament, it is enough to
enquire if it is a law with respect to matters or taxes enumerated
in List II. If it is not, no further question arises.
Thus, the wide words of a substantive Article like Article 248
should be given full effect and they cannot be cut down by the
wording in the Lists in Schedule VII merely because certain
known taxes have not been included therein.

Relevant Case Law on lotteries:

B.R. Enterprises:
12. The nature and characters of lottery was deliberated upon in B.R.
Enterprises vs. State of UP, (1999) 9 SCC 700 (“B.R. Enterprises”),
784 [2025] 2 S.C.R.

Supreme Court Reports

wherein it was held that the lotteries are a form of gambling and in
R.M.D. Chamarbaugwalla vs. Union of India, AIR 1957 SC 628,
it was observed that gambling actives are in the very nature and
essence res extra commercium. Even though lotteries were permitted
under the regulating power of the State, they could not be given the
status of trade and commerce “as understood in common parlance”.
Trade and commerce within the meaning of Articles 301 to 304. That
there are three ingredients in the sale of lottery tickets, namely (i)
price, (ii) chance, and (iii) consideration. That Entry 62 – List II refers
to taxes on betting and gambling and lotteries whether conducted
by private agencies or by the State are nothing but gambling. That
even though the state may conduct lotteries, the element of chance
remains, with no skill involved, while in a trade there is skill involved
with no chance. Even if the State conduct lotteries, the element of
chance remains, with no skill involved and even the organisation
and conduct of the lotteries by the State Government are within the
boundaries of gambling. That the only purpose of having stringent
measures vis-à-vis lotteries being conducted by the State was to
inculcate faith in the participants of such lottery being conducted fairly
with no possibility of fraud or misappropriation and deceit and assure
the hopeful recipients of high prizes that all is fair and safe. That the
object was to assure the participants that the proceeds from the sale
of lottery tickets are credited to the public accounts of the State and
would not be in the hands of any individual group or association and
thus to bring about a transparency in the organisation of the lottery
by the State, subject to the regulation. Even then, the activity of
conduct of the lottery would remain in the realm of gambling.

Sunrise Associates:
12.1 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
[2025] 2 S.C.R. 785

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

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.
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.
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.”

State of Karnataka:
12.2 In State of Karnataka vs. State of Meghalaya, (2023) 4
SCC 416 (“State of Karnataka”), a two-Judge Bench of this
Court of which one of us (Nagarathna, J.) was a member
786 [2025] 2 S.C.R.

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and who authored the judgment, observed in paragraphs
159 as under:
“159. Hence under Entry 62 of List II, the specific
power to tax an activity which is “betting and gambling”
is reserved with the State Legislature and cannot be
read within the scope and ambit of Entry 40 of List I
which is inherently restricted in its scope.”

K. Arumugam:
12.3 The Union of India sought to levy service tax on the premise
that the activity which the assessees 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 the assessees by filing
writ petitions before the High Courts.
Both the High Courts of Sikkim as well as that of Kerala held
against the assessees and opined that service tax is leviable
on their activity under the nomenclature of business auxiliary
service. Hence appeals were filed before this Court. The
following questions arose for 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?”
In K. Arumugam, on a plain reading of the Explanation in light
of the activity actually carried on by the appellant(s)-assessee(s)
therein, it was clear that the outright purchase of lottery tickets
from the promoters of the State or Directorate of Lotteries, as
the case may be, was 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 was 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 Act, 1994 could not bring within sub-clause (ii)
[2025] 2 S.C.R. 787

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

activity by assuming it was initially covered under sub-clause (i)
thereof but in fact was not, by virtue of the definition of goods
under the very same Act read with Section 2(7) of the Sale of
Goods Act, 1930. It was observed that the mere insertion of
an explanation could not make an activity a taxable service
when it was not covered under the main provision (which had
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. It was observed that the activity is not a
promotion or a marketing service rendered by the assessees
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 in the lottery tickets to the vendees, 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.
788 [2025] 2 S.C.R.

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Legal Framework:
13. For ease of reference, the provisions relating to imposition of service tax
on the sale of lotteries in five different periods namely, from 01.07.2003
to 30.06.2010, from 01.07.2010 to 30.06.2012, from 01.07.2012 to
31.05.2015, from 01.06.2015 to 31.03.2016 and from 01.04.2016 to
30.06.2017 are encapsulated under the respective headings:

“I. PERIOD FROM 01.07.2003 TILL 30.06.2010
No matter is pending in relation to this period as they
have been disposed off by this Court in K. Arumugam v.
Union of India & Others (2022 SCC Online SC 2278)

Provision Finance With Effect
Act From
65(105(zzb) 2003 01.07.2003
65(19) 2003 01.07.2003
Explanation inserted to 2008 16.05.2008
Section 65(19)(ii)

1. Section 65(105)(zzb)
Taxable Service means any service provided to a client,
by a commercial concern in relation to business auxiliary
service

2. Section 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
iii) any customer care service provided on behalf of the
client; or
iv) any incidental or auxiliary support service such as
billing, collection or recovery of cheques, accounts and
remittance, evaluation of prospective customer and public
relation services
[2025] 2 S.C.R. 789

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

3. Section 65(19) after Explanation inserted to sub-
clause (ii) through Section 90(3) of the Finance Act,
2008
‘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 purposes of this 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) any incidental or auxiliary support service such as
billing, collection or recovery of cheques, accounts and
remittance, evaluation of prospective customer and public
relation services

II. PERIOD FROM 01.07.2010 TILL 30.06.2012
This period pertains to (i) Civil Appeal 4289-4290 of 2013
and (ii) Civil Appeal 9506-9507 of 2013.

Provision Finance With Effect
Act From
Removal of Explanation 2010 01.07.2010
to Section 65(19)(ii)
Insertion of Section 2010 01.07.2010
65(105)(zzzzn)
Insertion of Rule 7C Notification 08.10.2010
49/2010
790 [2025] 2 S.C.R.

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1. Removal of Explanation to Section 65(19)(ii) through
Section 76(A)(1) of the Finance Act, 2010
76(A): In Section 65, save as otherwise provided, with
effect from such date as the Central Government may, by
notification in the Official Gazette, appoint-
(1) in clause (19), in sub-clause (ii), the Explanation
shall be omitted

2. Insertion of Section 65(105)(zzzzn) through Section
76(A)(6)(l) of the Finance Act, 2010
Taxable Service means any service provided to any
person, by any other person, for promotion, marketing,
organizing or in any other manner assisting in organizing
games of chance, including lottery, Bingo or Lotto in
whatever form or by whatever name called, whether
or not conducted through internet or other electronic
networks;

3. Section 66 as it existed during the period 01.07.2010
to 30.06.2012
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), (1), (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), (zzza), (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.
[2025] 2 S.C.R. 791

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

4. Section 67 containing the definition of ‘consideration’
from 01.04.2006 till 31.05.2015
(1) Subject to the provisions of this Chapter, service tax
chargeable on any taxable service with reference to its
value shall,--
(i) in a case where the provision of service is for a
consideration in money, be the gross amount charged by
the service provider for such service provided or to be
provided by him;
(ii) in a case where the provision of service is for a
consideration not wholly or partly consisting of money,
be such amount in money, with the addition of service tax
charged, is equivalent to the consideration;
(iii) in a case where the provision of service is for a
consideration which is not ascertainable, be the amount
as may be determined in the prescribed manner.
(2) Where the gross amount charged by a service provider,
for the service provided or to be provided is inclusive of
service tax payable, the value of such taxable service shall
be such amount as, with the addition of tax payable, is
equal to the gross amount charged.
(3) The gross amount charged for the taxable service shall
include any amount received towards the taxable service
before, during or after provision of such service.
(4) Subject to the provisions of sub-sections (1), (2) and
(3), the value shall be determined in such manner as may
be prescribed.
Explanation.--For the purposes of this Section,--
“(a) “consideration” includes any amount that is payable
for the taxable services provided or to be provided;

5. Insertion of Rule 7C to Service Tax Rules, 1994 by
clause (2) of Notification 49/2010 dated 08.10.2010
(7C) The distributor or selling agent, liable to pay service
tax for the taxable service of promotion, marketing,
792 [2025] 2 S.C.R.

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organising or in any other manner assisting in organising
lottery, referred to in sub-clause (zzzzn) of clause (105) of
Section 65 of the said Act (hereinafter referred to as the
said sub-clause), shall have the option to pay an amount
at the rate specified in column (2) of the Table given below,
subject to the conditions specified in the corresponding
entry in column (3) of the said Table, instead of paying
service tax at the rate specified in Section 66 of Chapter
V of the said Act:

S.No Rate Condition
(1) (2) (3)
1. Rs. 6000/- on every Rs. If the lottery or lottery
10 Lakh (or part of the scheme is one where
Rs. 10 Lakh) of aggregate the guaranteed prize
face value of lottery tickets payout is more than
printed by the organizing 80%
State for a draw
2. Rs. 9000/- on every Rs. If the lottery or lottery
10 Lakh (or part of Rs. 10 scheme is one where
Lakh) of aggregate face the guaranteed prize
value of lottery tickets payout is less than
printed by the organizing 80%
State for a draw
Provided that in case of online lottery, the aggregate face
value of lottery tickets for the purpose of this sub-rule
shall be taken as the aggregate value of tickets sold, and
service tax shall be calculated in the manner specified in
the said Table.
Provided further that the distributor or selling agent shall
exercise such option within a period of one month of
the beginning of each financial year and such option
shall not be withdrawn during the remaining part of the
financial year.
Provided also that the distributor or selling agent shall
exercise such option for financial year 2010-11, within a
period of one month of the publication of this sub-rule in
[2025] 2 S.C.R. 793

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

the Official Gazette or, in the case of new service provider,
within one month of providing of service under the said
sub-clause and such option shall not be withdrawn during
the remaining part of that financial year.
Explanation.- For the purpose of this sub-rule-
(i) ‘distributor or selling agent’ shall have the meaning
assigned to them in clause (c) of the rule 2 of the Lottery
(Regulation) Rules, 2010 notified by the Government
of India in the Ministry of Home Affairs published in the
Gazette of India, Part-II, Section 3, sub-section (i) vide
number G.S.R. 278(E) dated 1st April, 2010 and shall
include distributor or selling agent authorised by the lottery
organising State.
(ii) ‘draw’ shall have the meaning assigned to it in clause
(d) of the rule 2 of the Lottery (Regulation) Rules, 2010
notified by the Government of India in the Ministry of Home
Affairs published in the Gazette of India, Part-II, Section
3, sub-section (i) vide number G.S.R. 278(E) dated 1st
April, 2010.
(iii) ‘online lottery’ shall have the meaning assigned to it in
clause (e) of the rule 2 of the Lottery (Regulation) Rules,
2010 notified by the Government of India in the Ministry
of Home Affairs published in the Gazette of India, Part-
II, Section 3, sub-section (i) vide number G.S.R. 278(E)
dated 1st April, 2010.
(iv) ‘organising state’ shall have the meaning assigned
to it in clause (f) of the rule 2 of the Lottery (Regulation)
Rules, 2010 notified by the Government of India in the
Ministry of Home Affairs published in the Gazette of India,
Part-II, Section 3, sub-section (i) vide number G.S.R.
278(E) dated 1st April, 2010.

III. PERIOD FROM 01.07.2012 TILL 31.05.2015
This period pertains to (i) SLP (C) No.18565 of 2014
(ii) SLP (C) No.30629 of 2014 and (iii) SLP (C) No.14111
of 2015
794 [2025] 2 S.C.R.

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Provision Finance With Effect
Act From
Insertion of Section 65B(1) 2012 01.07.2012
Insertion of Section 65B(44) 2012 01.07.2012
Insertion of new Charging 2012 01.07.2012
Section 66B
Insertion of Negative List 2012 01.07.2012
Section 66D(i)
Section 66F 2012 01.07.2012
Cosmetic Amendment to Notification 20.06.2012
Rule 7C 36/2012

1. Insertion of Section 65B(1) through Section 143(C)
of the Finance Act, 2012
“actionable claim” shall have the same meaning assigned
to it in section 3 of the Transfer of Property Act, 1882
(4 of 1882)

2. Insertion of Section 65B(44) through Section 143(C)
of the Finance Act, 2012
“service” means any activity carried out by a person for
another for consideration, and includes a declared service,
but shall not include:
(a) an activity which constitutes merely.-
(i) a transfer of title in goods or immovable property, by
way of sale, gift or in any other manner; or
(ia) such transfer, delivery or supply of any goods which is
deemed to be a sale within the meaning of clause (29A)
of Article 366 of the Constitution; or
(ii) a transaction in money or actionable claim
(b) a provision of service by an employee to the employer
in the course of or in relation to his employment;
(c) fees taken in any Court or tribunal established under
any law for the time being in force.
[2025] 2 S.C.R. 795

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

Explanation 1.— For the removal of doubts, it is hereby
declared that nothing contained in this clause shall apply
to,—
(A) the functions performed by the Members of Parliament,
Members of State Legislature, Members of Panchayats,
Members of Municipalities and Members of other local
authorities who receive any consideration in performing
the functions of that office as such member; or
(B) the duties performed by any person who holds any
post in pursuance of the provisions of the Constitution in
that capacity; or
(C) the duties performed by any person as a Chairperson
or a Member or a Director in a body established by
the Central Government or State Governments or local
authority and who is not deemed as an employee before
the commencement of this Section.
Explanation IA- For the purposes of this clause, transaction
in money shall not include any activity relating to the
use of money or its conversion by cash or by any other
mode, from one form, currency or denomination to another
form, currency or denomination for which a separate
consideration is charged;
Explanation 2.— For the purposes of this Chapter,—
(a) an unincorporated association or a body of persons, as
the case may be, and a member thereof shall be treated
as distinct persons;
(b) an establishment of a person in the taxable territory and
any of his other establishment in a non-taxable territory
shall be treated as establishments of distinct persons.
Explanation 3.— A person carrying on a business through a
branch or agency or representational office in any territory
shall be treated as having an establishment in that territory;

3. Insertion of new Charging Section 66B through
Section 143(F) of Finance Act, 2012
796 [2025] 2 S.C.R.

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There shall be levied a tax (hereinafter referred to as the
service tax) at the rate of twelve per cent, on the value
of all services, other than those services specified in the
negative list, provided or agreed to be provided in the
taxable territory by one person to another and collected
in such manner as may be prescribed.

4. Insertion of Negative List Section 66D through
Section 143(F) of Finance Act, 2012
The negative list shall comprise of the following services,
namely:-
(a)…(h)
(i) betting, gambling or lottery;

5. Cosmetic Amendment to Rule 7C vide Clause (7)(7)
of Notification 36/2012 dated 20.06.2012
(7C) The distributor or selling agent, liable to pay service tax
for the taxable service of promotion, marketing, organising
or in any other manner assisting in organising lottery, shall
have the option to pay an amount at the rate specified
in column (2) of the Table given below, subject to the
conditions specified in the corresponding entry in column
(3) of the said Table, instead of paying service tax at the
rate specified in section 66B of Chapter V of the said Act:

S.No Rate Condition
(1) (2) (3)
1. Rs. 6000/- on every Rs. If the lottery or lottery
10 Lakh (or part of the scheme is one where
Rs. 10 Lakh) of aggregate the guaranteed prize
face value of lottery tickets payout is more than
printed by the organizing 80%
State for a draw
2. Rs. 9000/- on every Rs. 10 If the lottery or lottery
Lakh (or part of Rs. 10 Lakh) scheme is one where
of aggregate face value of the guaranteed prize
lottery tickets printed by the payout is less than
organizing State for a draw 80%
[2025] 2 S.C.R. 797

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

Provided that in case of online lottery, the aggregate face
value of lottery tickets for the purpose of this sub-rule
shall be taken as the aggregate value of tickets sold, and
service tax shall be calculated in the manner specified in
the said Table.
Provided further that the distributor or selling agent shall
exercise such option within a period of one month of the
beginning of each financial year and such option shall not
be withdrawn during the remaining part of the financial year.
Provided also that the distributor or selling agent shall
exercise such option for financial year 2010-11, within a
period of one month of the publication of this sub-rule in
the Official Gazette or, in the case of new service provider,
within one month of providing of such service and such
option shall not be withdrawn during the remaining part
of that financial year.
Explanation.- For the purpose of this sub-rule-
(i) ‘distributor or selling agent’ shall have the meaning
assigned to them in clause (c) of the rule 2 of the Lottery
(Regulation) Rules, 2010 notified by the Government
of India in the Ministry of Home Affairs published in the
Gazette of India, Part-II, Section 3, Sub-section (i) vide
number G.S.R. 278(E) dated 1st April, 2010 and shall
include distributor or selling agent authorised by the lottery
organising State.
(ii) ‘draw’ shall have the meaning assigned to it in clause
(d) of the rule 2 of the Lottery (Regulation) Rules, 2010
notified by the Government of India in the Ministry of Home
Affairs published in the Gazette of India, Part-II, Section
3, Sub-section (i) vide number G.S.R. 278(E) dated 1st
April, 2010.
(iii) ‘online lottery’ shall have the meaning assigned to it in
clause (e) of the rule 2 of the Lottery (Regulation) Rules,
2010 notified by the Government of India in the Ministry
of Home Affairs published in the Gazette of India, Part-
II, Section 3, Sub-section (i) vide number G.S.R. 278(E)
dated 1st April, 2010.
798 [2025] 2 S.C.R.

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(iv) ‘organising state’ shall have the meaning assigned to it
in clause (f) of the rule 2 of the Lottery (Regulation) Rules,
2010 notified by the Government of India in the Ministry
of Home Affairs published in the Gazette of India, Part-
II, Section 3, Sub-section (i) vide number G.S.R. 278(E)
dated 1st April, 2010.

IV. PERIOD FROM 01.06.2015 TILL 31.03.2016
This period pertains to SLP (C) 18565 of 2014

Provision Finance With Effect
Act From
Insertion of Section 65B(31A) 2015 01.06.2015
Substitution of Explanation 2 2015 01.06.2015
to Section 65B(44)
Insertion of Explanation to 2015 01.06.2015
Section 66D(i)
Substitution of Section 67 2015 01.06.2015

1. Insertion of Section 65B(31A) through Section 107(e)
of the Finance Act, 2015
“lottery distributor or selling agent” means a person
appointed or authorised by a State for the purposes of
promoting, marketing, selling or facilitating in organising
lottery of any kind, in any manner, organised by such
State in accordance with the provisions of the Lotteries
(Regulation) Act, 1998 (17 of 1998)

2. Substitution of Explanation 2 to Section 65B(44)
through Section 107(g) of the Finance Act, 2015
‘For the purposes of this clause, the expression “transaction
in money or actionable claim” shall not include—
(i) any activity relating to use of money or its conversion
by cash or by any other mode, from one form, currency or
denomination, to another form, currency or denomination
for which a separate consideration is charged;
[2025] 2 S.C.R. 799

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

(ii) any activity carried out, for a consideration, in relation
to, or for facilitation of, a transaction in money or actionable
claim, including the activity carried out--
(a) by a lottery distributor or selling agent in relation to
promotion, marketing, organising, selling of lottery or
facilitating in organising lottery of any kind, in any other
manner;
(b) by a foreman of chit fund for conducting or organising
a chit in any manner.’;

3. Insertion of Explanation to Section 66D(i) through
Section 109 of the Finance Act, 2015
66D(i): Betting, Gambling or Lottery
‘Explanation.-For the purposes of this clause, the expression
“betting, gambling or lottery” shall not include the activity
specified in Explanation 2 to clause (44) of section 65B;’;

4. Substitution of Clause (a) of Explanation to Section
67 containing the definition of ‘consideration’ through
Section 111 of the Finance Act, 2015
(1) Subject to the provisions of this Chapter, service tax
chargeable on any taxable service with reference to its
value shall,--
(i) in a case where the provision of service is for a
consideration in money, be the gross amount charged by
the service provider for such service provided or to be
provided by him;
(ii) in a case where the provision of service is for a
consideration not wholly or partly consisting of money,
be such amount in money, with the addition of service tax
charged, is equivalent to the consideration;
(iii) in a case where the provision of service is for a
consideration which is not ascertainable, be the amount
as may be determined in the prescribed manner.
(2) Where the gross amount charged by a service provider,
for the service provided or to be provided is inclusive of
800 [2025] 2 S.C.R.

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service tax payable, the value of such taxable service shall
be such amount as, with the addition of tax payable, is
equal to the gross amount charged.
(3) The gross amount charged for the taxable service shall
include any amount received towards the taxable service
before, during or after provision of such service.
(4) Subject to the provisions of sub-sections (1), (2) and
(3), the value shall be determined in such manner as may
be prescribed.
Explanation.--For the purposes of this section,--
‘(a) “consideration” includes-
(i) any amount that is payable for the taxable services
provided or to be provided;
(ii) any reimbursable expenditure or cost incurred by the
service provider and charged, in the course of providing
or agreeing to provide a taxable service, except in such
circumstances, and subject to such conditions, as may
be prescribed;
(iii) any amount retained by the lottery distributor or selling
agent from gross sale amount of lottery ticket in addition to
the fee or commission, if any, or, as the case may be, the
discount received, that is to say, the difference in the face
value of lottery ticket and the price at which the distributor
or selling agent gets such ticket.’.

V. PERIOD FROM 01.04.2016 TILL 30.06.2017
This period pertains to (i) SLP (C) No.19200 of 2017 (ii)
SLP (C) No.23945 of 2017 and (iii) SLP (C) No.16118
of 2017

Provision Finance With Effect
Act From
Cosmetic Amendment to 2016 01.04.2016
Explanation 2 to Section
65B(44)
[2025] 2 S.C.R. 801

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

1. Cosmetic Amendment to Clause (ii)(a) of Explanation
2 to Section 65B(44)
‘For the purposes of this clause, the expression “transaction
in money or actionable claim” shall not include—
(i) any activity relating to use of money or its conversion
by cash or by any other mode, from one form, currency or
denomination, to another form, currency or denomination
for which a separate consideration is charged;
(ii) any activity carried out, for a consideration, in relation
to, or for facilitation of, a transaction in money or actionable
claim, including the activity carried out--
(a) by a lottery distributor or selling agent on behalf of
the State Government in relation to promotion, marketing,
organising, selling of lottery or facilitating in organising
lottery of any kind, in any other manner in accordance
with the provisions of the Lotteries (Regulation) Act, 1998
(17 of 1998);
(b) by a foreman of chit fund for conducting or organising
a chit in any manner.’;”

Agreements under consideration:
14. Learned counsel for the respective parties have drawn our attention
to certain agreements entered into between the Government of Sikkim
and respondent-assessees from time to time. The agreements are
two-fold in nature. One set of agreements deal with paper lottery and
another set of agreements deal with online computerised lotteries.
The clauses relevant for the purpose of the present controversy,
i.e., to ascertain whether the agreements are of agency or not are
extracted as under:

Paper Lotteries:

(i) Agreement dated 06.10.2004
“AGREEMENT
This Agreement is made this day the 6th October 2004
between the Governor of Sikkim through the Secretary
802 [2025] 2 S.C.R.

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to the Government of Sikkim in the Finance Department,
(herein after referred to as the Government)… and M/s
Martin Lottery Agencies Ltd. represented by its MANAGING
DIRECTOR (hereinafter referred to as the Distributor)…
xxx
AND WHEREAS M/s. Martin Lottery Agencies Ltd., has
been selected for appointment as Sole Distributor for the
above Lottery Schemes by the Government of Sikkim.
xxx
Now it is hereby agreed between parties hereto as under:
1. That the Government shall appoint M/S Martin Lottery
Agencies as Sole Distributor for marketing of lottery
tickets on all sold basis.
2. The Government shall run a minimum 5 (five) weekly
lottery schemes and 6(six) bumper draws per year
for an annual revenue of Rs.5.50 crores per annum.
3. That the agreement shall remain in force for a period
of 5 (five) years from 18.10.2004 to the 17.10.2009
(both days inclusive). The period of the agreement
may, however, be extended for such further period
and upon such terms and conditions as may be at
the relevant time, be mutually agreed upon.
xxx
10. That the Government shall deliver the tickets to the
Distributor at the destination as may be agreed upon.
11. That the Government shall sell and the Distributor
shall buy the full lot of tickets for which the wholesale
price of tickets shall be determined consisting of total
prize amount as per schemes, actual cost of paper and
printing, draw expenses, Government commission.
However, the prices may change under the following
circumstances:
i. Change in prize structure of lottery schemes.
ii. Change in paper and printing cost/freight charges.
[2025] 2 S.C.R. 803

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

iii. Market conditions.
12. That the full payment of tickets printed shall be
realized on delivery of tickets at wholesale rates as
per clause 11 above.
xxx
25. The Government shall deliver the tickets to the
Distributor against full payment for which proper
invoice shall be raised indicating amount of wholesale
rate and adjustment of prizes upto Rs.5000/- (Rupees
five thousand) to be disbursed by the Distributor for
each lottery draw.
26. The Distributor shall pay sales tax or any other kind
of taxes imposed by the other State Governments
on sale of lottery tickets.
xxx”

(ii) Agreement dated 10.08.2009
“AGREEMENT
This Agreement is made on this the 10th day of August 2009,
between the Governor of Sikkim, through the Additional
Chief Secretary, Finance, Revenue & Expenditure
Department, Government of Sikkim (hereinafter referred
to as the ‘Government’) ….
AND
M/s Future Gaming Solutions India Pvt. Ltd. (formerly
M/s Martin Lottery Agencies Ltd.)… represented by
its Managing Director Mr. Martin, Son of Mr. Santiago
(hereinafter referred to as the ‘Sole Purchaser’)…
WHEREAS in pursuant of an open tender called by the
Government. The second Party was appointed as the
purchaser for sale of conventional weekly paper (3 digit and
above) lottery and bumper lottery with denomination of rupee
one and above organised by the Government for a period
of five years vide an agreement dated 6th October, 2004.
xxx
804 [2025] 2 S.C.R.

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And whereas M/s Future Gaming Solutions India Private
Ltd., has been appointed as the exclusive Sole Purchaser
for the above Lottery schemes by the Government of
Sikkim.
Now, therefore, in view of the above changes and
amendments the parties are desirous of signing a fresh
agreement to govern their respective rights and liabilities
in suppression of the earlier agreement dated 06.10.2004
as under:-
Now it is hereby agreed between parties hereto as under:
1. That the Government hereby appoints M/s Future
Gaming Solutions India Pvt. Ltd. sole purchaser of
conventional paper lottery tickets on actual sold basis.
xxx
4. That in consideration of the appointment of the
Second Party as sole purchaser of the conventional
paper lottery of the Government for a maximum of
50 (fifty) weekly lottery schemes per day, the sole
purchaser shall pay a sum of Rs.8 crores (Rupees
Eight Crores) per annum to the Government for
the 1st year of the extended period i.e. w.e.f. 18th
October, 2009 to 17th October, 2010 and a sum
of Rs.10 Crores (Rupees Ten Crores) per annum
only from the second year of the extended period
effective from 18th October, 2010 to 17th October,
2014. If the sole purchaser proposes to increase
the number of scheme above 50 (Fifty) they shall
pay to the Government as the state share such the
sum of money as may be worked out on the basis of
such additional schemes as and as may be mutually
agreed upon between the parties.
Provided that if the sole purchaser could not purchase
such additional schemes for one complete year (12
months) and discontinues the additional schemes
before completion of one year they shall be liable
to pay the Government share proportionate to the
period of actual scheme only.
[2025] 2 S.C.R. 805

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

5. (a) That the sole purchaser shall provide the
Government with a bank guarantee of Rs.10.00 crores
(Rupees Ten Crores) as security deposit in favour
of the Government of Sikkim. Finance, Revenue &
Expenditure Department of a Nationalized Bank /
Scheduled Bank one week before coming into force
of this agreement;
(b) The Bank Guarantee shall be valid for the duration
of the agreement and six months thereafter and shall
be liable to be invoked by the Government for failure
to deposit the sale proceeds of the tickets of Sikkim
State lotteries taken delivery by the sole purchaser
and any other charges due and payable by the sole
purchaser or for breach of any of the terms and
conditions of this agreement.
Provided that the Bank Guarantee shall not be invoked
without giving 30 (thirty) days notice in writing directing
the sole purchaser to pay the amount due under this
agreement to the Government of Sikkim.
(c) Upon failure on the part of the sole purchaser to
pay the amount demanded under the notice within 30
(thirty) days of receipt of the notice, the Government
shall have the right to invoke the Bank Guarantee to
the extent of the amount demanded and not paid.
Provided that the shortfall, if any, in the amount of
the Bank Guarantee required under this agreement
shall be made good by the sole purchaser and shall
be furnished to the Government of Sikkim within
a period of 45 (forty five) days from the date of
signing of this agreement or at least a day before the
commencement of the draws of the lottery, whichever
is earlier.
xxx
13. That the Government shall deliver the tickets to the
sole purchaser at the destination as may be agreed upon.
14. That the Government shall deliver to and the sole
purchaser shall take delivery from the Government whole of
806 [2025] 2 S.C.R.

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the lottery tickets printed for a draw of a particular scheme
with a clear understanding that if the sole purchaser is not
able to sell the whole tickets, he shall return the unsold
tickets to the Government within 15 (fifteen) days from
the date of draw, which shall then be destroyed after
verification. The whole sale price of tickets sold shall be
determined by the Government on the basis of the prize
amount, cost of paper, cost of printing, draw expenses,
transportation charges and the Government share of
revenue as fixed under Clause 4:
Provided that the prices of the tickets may be changed
under the following circumstances, namely:-
(i) Change in the price structure of the lottery
schemes,
(ii) Change in the paper cost, printing charges and
freight, and
(iii) Market conditions.
15. That the full payment of the tickets resold by the sole
purchaser shall be realized by the Government from the
sole purchaser at wholesale rates as per clause 14 above.
16. That the sole purchaser shall produce the monthly
return of sales tax, if any, paid to the respective state
governments wherever the tickets are sold for information
of the Government.
xxx
20. That the Government shall immediately after each
draw supply to the sole purchaser a copy of the result
of the draw duty authenticated by the Director who shall
immediately thereafter make arrangements to publicize
the result of each draw.
Provided that the sole purchaser is at liberty, on his own
cost and expenses to take up any kind of publicity of
Sikkim state lotteries including telecast of result on any
Satellite T.V. Channel every day, provided the publicity
shall in no way undermine the prestige of the Government.
[2025] 2 S.C.R. 807

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

No claim for cost on these accounts will be entertained
by the Government.
xxx
23. The sole purchaser may appoint stockists, selling
agents or sellers for further resale in different parts of
the country on his own terms and at his own risk and
responsibility.
xxx
25. The sale proceeds/cost of the tickets as may be
determined by the Government from time to time may be
deposited with the Government as per the directives of
the Director, Sikkim State lotteries.
26. The sole purchaser shall pay the full amount for the
tickets actually sold by the sole purchaser upon receipt
of the invoice from the Government which shall be raised
indicating the amount of wholesale rate and adjustment
of prizes up to Rs.5000/- (Rupees five thousand) to be
disbursed by the sole purchaser for each lottery draw on
the lottery tickets actually sold by the sole purchaser.
27. The sole purchaser shall pay State tax or any other
kind of taxes imposed by the other State Governments
on sale of lottery tickets.
xxx
30. The sole purchaser shall be entitled to appoint stockists,
selling agents or sellers in the discharge of any obligations
hereunder or as a result of this agreement. However, the
Government shall have no responsibility or liability towards
such stockists, selling agents or sellers and shall have
no privity of contract with them. Any dispute whether as
result of non-payment or otherwise, shall not discharge the
Sole purchaser’s obligation towards the State Government
under this Agreement.
31. All unclaimed prizes shall be the property of the
Government and full accounts of unclaimed prizes shall be
rendered by the sole purchaser for prizes up to Rs.5000/-
(Rupees five thousand).”
808 [2025] 2 S.C.R.

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(iii) Agreement dated 24.01.2015

“AGREEMENT
This Agreement is made on this the 24th day of January,
2015 between the Governor of Sikkim, through the Principal
Secretary, Finance, Revenue and Expenditure Department,
Government of Sikkim (hereinafter referred to as the
‘Government’) which expression shall unless excluded
by or repugnant to the context means and includes its
successors in office and assigns of the FIRST PART.
AND
M/s Future Gaming and Hotel Services Private Limited, a
company having its registered office at 54, Mettupalayam
Road, G.N. Mills Post, Coimbatore – 641029 Tamilnadu,
and having its branch/sales office at kazi Road, Gangtok,
Sikkim – 737101, represented by its Managing Director
Mr. S. Martin, son of Mr. Santiago (hereinafter referred
to as the ‘Sole Purchaser / Distributor’) which expression
shall, unless excluded by or repugnant to the context
means and includes its successors and assigns of the
SECOND PART;
xxx
WHEREAS in pursuant to the Notice Inviting Tender
dated November, 15, 2014, M/s Future Gaming and Hotel
Services Private Limited has qualified in the technical bid
and has quoted the highest assured amount of revenue
per draw to the State for 08 (eight) Sikkim State Paper
Lottery schemes.
xxx
7. DEPOSITING OF SALE PROCEEDS OF THE
TICKETS:
7.1 The Sole Purchaser/Distributor shall purchase the
lottery tickets from the Government for further sales,
and payments shall be made by the sole Purchaser/
Distributor to the Government for such tickets as per
the invoice raised by the Government.
[2025] 2 S.C.R. 809

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

7.2 The sale proceeds of the sale of lottery tickets shall
be credited by the Sole Purchaser/Distributor into the
Treasury or Public Ledger Account or Consolidated
Fund of the State of Sikkim or Public Account or Fund
as per the invoice raised by the State Government
on the Sole Purchaser/Distributor, as prescribed by
the State Government.
7.3 The Sole Purchaser/Distributor shall deposit sale
proceeds as prescribed, ensuring Guaranteed
Revenue as per clause (10) of this Agreement.
7.4 In the event, the Sole Purchaser/Distributor fails to
comply with the above conditions, the Government
reserves the right to refuse any further sale of lottery
tickets to the Sole Purchaser/Distributor, and to
suitably encash the bank guarantee executed by the
Sole Purchaser/Distributor.
xxx
10. MINIMUM GUARANTEED REVENUE:
With regard to the provisions of this Agreement, the Sole
Purchaser/Distributor has agreed to deposit the Minimum
Guaranteed Revenue to the Government as under:-
10.1 Minimum guaranteed revenue of the Government of
State of Sikkim shall be Rs.15,00,12,800/- Rupees
(Fifteen Crores Twelve Thousand and Eight Hundred
Only) upto a turnover of Rs. 9,000 Crores Rupees
(Nine Thousand Crores) per annum.
10.2 On an additional turnover over and above Rs.9,000
Crores Rupees (Nine Thousand Crores) per annum,
the Sole Purchaser/Distributor shall pay 0.25% of the
additional turnover to the Government of the State
of Sikkim.
10.3 The Sole Purchaser/Distributor shall be required to
submit monthly turnover statements of the proceeds
and sales of lottery/schemes to the Government of the
State of Sikkim by the 15th of the succeeding month.
xxx
810 [2025] 2 S.C.R.

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15.7 The sole Purchaser/Distributor shall fully indemnify
and hold harmless and defend Government and its
officers against any financial and legal liabilities on
account of violation of the relevant laws and rules in
force in country, and all such claims that are solely
attributable to the Sole Purchaser/Distributor, in
relation to the sale of lottery tickets during the terms
of this Agreement.”

(iv) Agreement dated 06.06.2016
“AGREEMENT
This Agreement is made on this the 06th day of June,
2016 (Two thousand and sixteen) between the Governor
of Sikkim, through the Principal Secretary, Finance,
Revenue and Expenditure Department, Government of
Sikkim (hereinafter referred to as the ‘Government’) which
expression shall unless excluded by or repugnant to the
context means and includes its successors in office and
assigns of the FIRST PART.
AND
M/s Future Gaming and Hotel Services Private Limited, a
Private Limited company incorporated under Companies
Act 1956, having its registered office at 54, Mettupalayam
Road, G.N. Mills Post, Coimbatore – 641029, and having
its branch/sales office at, Samdrupling Building, Kazi Road,
Gangtok, Sikkim – 737101, represented by its Managing
Director Shri S. Martin, son of Shri Santiyago (hereinafter
referred to as the ‘Sole Purchaser / Distributor’)…
xxx
AND WHEREAS the Government and the Sole Purchaser/
Distributor (hereinafter referred to as Distributor) decided
to enter into an Agreement:
xxx
1. DEFINITIONS:
In the Agreement unless the context otherwise requires:
xxx
[2025] 2 S.C.R. 811

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

1.4 This Agreement will be in line with the Model
Agreement circulated by the Ministry of Home
Affairs, Government of India vide their letter No.
V-17013/1/2010-CSR-1 dated 28th December, 2011
as already specified in the Invitation for Expression of
Interest; and the Model Agreement may be referred
for purposes of interpretations of this Agreement.
xxx
4.7 All the unsold tickets, if any, at the time of draw, with
the Distributor shall be returned by the Distributor to
the Director of Lotteries, Government of Sikkim or
the Government authorized officials/person.
4.8 The Distributor shall submit the statement of sold
tickets for each draw of different schemes to the
Director of Lotteries, Government of Sikkim within
09 (Nine) days from the date of draw(s). The State
Government will keep a record of the tickets issued
to the Distributor.”

Online Computerised Agreement:
At this stage, we extract the relevant clauses of the agreement dated
09.05.2005 and the supplementary agreement dated 25.04.2008
between the State of Sikkim and assessee-M/s Sugal and Damani
Enterprises Pvt. Ltd. for sale of online computerized network lottery,
as under:
“AGREEMENT
This Agreement made at Gangtok, this the 9th day of May
2005, between the Governor of Skim, through the Principal
Secretary to the Government of Sikkim in the Finance
Department, revenue and expenditure……
AND
M/S Sugal & Damani Partnership firm having its Head
office at 6/35W.E.A, Karol Bagh, NEW DELHI-110005…
represented by its partner…
Whereas the Government with an objective to generate/
raise revenue/funds for the State of Sikkim has decided
812 [2025] 2 S.C.R.

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to appoint additional Marketing agent for Computerized
Network Lottery by selling lottery tickets to a variety of
users through a process of On-Line Computerized Lottery
System, which will also provide a venue for healthy
entertainment and the Government intends to utilize the
funds generated from the sale of the said Computerized
Network Lottery tickets for good causes for health,
education, infrastructure development and anti-poverty
programs, and other developmental activities etc;
And Whereas the Government has received offer from
M/S Sugal & Damani for appointment as Marketing Agent
for the said Computerized Network Lottery.
xxx
“Agent” means the Sole Distributor and any person
acting on behalf of the Sole Distributor as a stockists,
sub-stockists, distributor or seller of any Lottery forming
part of the Lottery Business.
“Agency” means the appointment by the State of the Sole
Distributor for marketing/selling of Lotteries on behalf of the
State (including the sale and distribution of tickets either
itself or through us distributors or stockist/sub-stockist).
xxx
“Sub-agent/Retailer” means a person appointed by the
Marketing Agent above or by any other person(s) duly
authorised the Marketing Agent, to operate the lottery
terminals and with whom the Marketing Agent (or any
other person duly authorized by the agent as detailed
above) has entered into a bilateral agreement to operate
the lottery terminals or sell tickets.
xxx
10. CONSIDERATION
In consideration of the arrangement as agreed and
contained in this deed of Agreement between the
Government and the Marketing Agent, the Marketing Agent
has agreed as under:
[2025] 2 S.C.R. 813

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

a. Minimum guaranteed revenue to the government
of Sikkim will be 1% of the turnover up to Rs. 1000
crores or Rs. 10 crores p.a. whichever is higher.
b. On additional turnover over and above Rs.1000/-
crores the Marketing Agent will pay 0.50% of the
additional turnover to the state government.
xxx
12. REALISATION OF SALE PROCEEDS
The Marketing Agent shall deposit the Sale Proceeds
(except prizes payable up to Rs.5000/-) with the Government
on a monthly basis, along with account statement of such
sale proceeds supported by record/document.
xxx
16. CONDUCTING OF STATE ON-LINE COMPUTERIZED
NETWORK LOTTERY
a) The State On-line Computerizes Network
Lottery shall be organised, conducted or
promoted by the Government through the
Marketing Agent.
b) On-line computerized Network Lottery tickets
shall be made available to the public through
various retailers/sub-agents appointed by the
Marketing Agent who will enter into bilateral
agreements with these retailer/sub-agents. The
date and time of the draw shall be indicated on
the tickets themselves.
xxx
23. RELATIONSHIP BETWEEN MARKETING AGENT
AND THE STATE GOVERNMENT
The relationship between the Marketing Agent and the
Government will be one of Principal and Agent as defined
in the Indian Contracts Act, 1872 as amended.
xxx
814 [2025] 2 S.C.R.

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28. BANK GUARANTEE
(a) The Marketing Agent shall execute in favour of the
Government a Bank Guarantee Rs. 1.5 Crores (rupees one
crores fifty lakhs) for the performance of the agreement.
The Bank Guarantee shall be executed as Security Deposit
of a Nationalised Bank in favour of the Principal Secretary
to the Government of Sikkim, Finance, Revenue and
expenditure Department.

SUPPLEMENTARY AGREEMENT
This supplementary agreement is made on this the 25th day
of April, 2008 between the Governor of Sikkim, through the
Additional Chief Secretary to the Government of Sikkim,
Finance, Revenue and Expenditure Department…
AND
M/s. Sugal and Damani Enterprises Pvt. Ltd., a Joint Stock
Company registered under the Companies Act, 1956,…
represented by ….
Whereas Marketing Agent vide agreement dated 9th
May, 2005 (hereinafter referred to as the said agreement)
had agreed to conduct Sikkim State Online Lottery and
among other terms and conditions, vide clause 10 of the
said agreement the Marketing Agent had agreed to pay
a sum of Rs.10 crores (Rupees ten crore) per annum
as Minimum Assured Revenue @ Rs.1% of the turnover
up to Rs.1000 crore and on additional turnover over and
above Rs.1000 crore @ Rs.0.50% of the turnover to the
Government;
And whereas the Marketing Agent submitted that the sale of
Online Lottery has reduced due to imposition of Lottery Tax
in Maharashtra State by the Government of Maharashtra
and banning of all types of lottery in Karnataka State by
the Government of Karnataka w.e.f. 1” April, 2007 and
requested the Government to review the minimum assured
revenue vide their applications dated 25th September, 2007
and dated 16th January, 2008.
[2025] 2 S.C.R. 815

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

“10. CONSIDERATION:-
In consideration of the arrangement as agreed and
contained in this deed of Agreement between the
Government and the Marketing Agent, the Marketing
Agent has agreed as under:
Minimum guaranteed revenue to the Govt. of Sikkim
will be 1% of the turnover up to Rs. 1000 Crores or
Rs. 10 crores p.a. whichever is higher.
On additional turnover over and above Rs.1000 crores
the Marketing Agent will pay 0.25% of the additional
turnover to the State Government.”
The other terms and conditions of the aforesaid
agreement shall remain unchanged.”

Agency:
15. Before proceeding to answer the contentions advanced at the Bar
on the nature of relationship between the Government of Sikkim and
the respondents-assessees herein, it would be useful to refer to the
concept of agency. This is because if the relationship is in the nature
of an agency (on the premise that the latter are rendering service
to the State Government on the basis of the agreements entered
into between the parties), then service tax is liable to be paid by the
respondents-assessees herein under the Finance Act, 1994.
15.1 The relevant provisions of the Indian Contract Act, 1872 read
as under:
“182.“Agent” and “principal” defined.— An “agent” is a
person employed to do any act for another, or to represent
another in dealings with third person. The person for whom
such act is done, or who is so represented, is called the
“principal”.
183. Who may employ agent.— Any person who is of
the age of majority according to the law to which he is
subject, and who is of sound mind, may employ an agent.
184. Who may be an agent.— As between the principal
and third person any person may become an agent, but
816 [2025] 2 S.C.R.

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no person who is not of the age of majority and of sound
mind can become an agent, so as to be responsible to
his principal according to the provisions in that behalf
herein contained.
185. Consideration not necessary.— No consideration
is necessary to create an agency.
186. Agent’s authority may be expressed or implied.—
The authority of an agent may be expressed or implied.
187. Definitions of express and implied authority.— An
authority is said to be express when it is given by words
spoken or written. An authority is said to be implied when
it is to be inferred from the circumstances of the case; and
things spoken or written, or the ordinary course of dealing,
may be accounted circumstances of the case.
188. Extent of agent’s authority.— An agent, having an
authority to do an act, has authority to do every lawful
thing which is necessary in order to do such act.
An agent having an authority to carry on a business, has
authority to do every lawful thing necessary for the purpose,
or usually done in the course, of conducting such business.
xxx
191. “Sub-agent” defined.— A “sub-agent” is a person
employed by, and acting under the control of, the original
agent in the business of the agency.
xxx
222. Agent to be indemnified against consequences
of lawful acts.— The employer of an agent is bound to
indemnify him against the consequences of all lawful acts
done by such agent in exercise of the authority conferred
upon him.”
15.2 According to Bowstead and Reynolds on Agency, 23rd Edition,
agency is the fiduciary relationship which exists between two
persons, one of whom expressly or impliedly manifests assent
that the other should act on his behalf so as to affect his legal
relations with third parties and the other of whom similarly
[2025] 2 S.C.R. 817

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

manifests assent so as to act or so acts pursuant to the
manifestation. Thus, the one on whose behalf the act or acts
have to be done is called the principal and the other who is to
act is called the agent. Any person other than the principal and
the agent may be referred to as the third party. The authority
of the agent to act on behalf of the principal constitutes a
power to affect the principal’s legal relations with third parties.
Such authority could be called actual authority or apparent
authority. Thus, the essence of agency is that a person acts
on the principal’s behalf. Therefore, the term agency is used to
connote an authority or capacity in one person to create legal
relations between a person occupying the position of principal
and third parties. Usually, the legal relations so created will be
contractual in nature. Conversely, the mere fact that a person
does something in order to benefit another and the latter is
relying on the former to do so or may have requested or even
contracted for performance of the action, does not make the
former the agent of the latter. The centrality to agency is the
conferral of authority to alter legal relations; as such in common
law, being an agent is not a status but a description of a person,
while and only so long as the person is exercising such authority.
Thus, where one person (the principal), requests or authorises
the other (agent), to act on his behalf and the other agrees to
do so, the law recognises that such agent has power to affect
the principal’s legal position by acts which, though performed
by the agent, are to be treated in certain respects as if they
were acts of the principal. It is common to regard control by the
principal as a defining characteristic of agency. Thus, agency
is termed as acting on behalf of the principal and subject to
principal’s control.
15.3 An agency has to be distinguished from other relationships such
as an agent and trustee; agent and bailee; agent and employee;
agent and independent contractor; agent and seller; agent and
buyer; agent and borrower; agent and person supplying services.
15.4 Suppliers of the goods of a manufacturer, whether on a retail or
wholesale basis, who have some form of concession as a regular
stockist, distributor or franchisee, are often described as agent,
selling agent, main agent, etc. for the manufacturer of goods
which they supply. However, nowadays the distributor actually
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buys from the manufacturer and resells it to his own customers.
In such cases, the term ‘agent’ is used in a complimentary sense
only, i.e., not to transact any business on behalf of the principal,
except as regards purchase of the goods from the principal. Such
a relationship is quite different from an agency. The distinction
between an agent and the buyer for resale normally turns on
whether the person concerned acts personally to make such
profit as can be made, or is remunerated by pre-arranged
commission. A supplier who fixes the resale price is likely to
be a buyer for resale. If a party takes a profit on the resale, it
will make him a seller. On the other hand, if a commission is
paid on the resale, then, he is likely to be an agent.
15.5 In Benjamin’s Sale of Goods, Eleventh Edition, Sweet & Maxwell,
it has been stated that sale has to be distinguished from a
contract of agency. When goods are delivered to another for
sale to a third party, the recipient may be an outright buyer, or
may take the goods on sale or return, or may merely be the
supplier’s agent to sell the goods, or an agent on a del credere
commission, i.e., an agent who guarantees to the principal that
the buyer will duly pay the price.
15.6 To determine the nature of the transaction, the whole agreement
must be looked into as “the test is ultimately one of substance
rather than form”. However, there are certain indicators. It is
not conclusive that the consignee should be described in the
contract as an “agent” or even “sole agent”, or conversely that
the transaction should be called a “sale”, although the way
in which the parties label the transaction will, typically, play a
significant part in the court’s determination of the issue. Also,
certain stipulations may be consistent with both sale (and
especially sale or return) and agency, and, therefore, cannot
be taken as indicative of either; for instance, the transfer to the
consignee of the property in goods shipped upon the acceptance
of drafts. It is, however, evidence towards a sale that the
recipient is entitled to sell at whatever price the recipient thinks
fit, accounting to the supplier only for a predetermined sum,
and this interpretation is given further support, if the recipient is
free to alter or improve the goods. Where the consignee pays
wholesale prices for the goods, he is likely to be acting as a
principal in the sale. If the consignee sells (whether for cash or
[2025] 2 S.C.R. 819

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

on credit) to a retail purchaser, this immediately gives rise to a
debt to the supplier for the listed price, the transaction becomes
quite inconsistent with agency, including del credere agency,
and would be consistent only with sale or return.

Case Law:
16. Learned counsel for the respective parties relied upon the following
cases in support of their submissions:
16.1 In Bhopal Sugar Industries Ltd. vs. STO, (1977) 3 SCC 147,
(“Bhopal Sugar Industries Ltd.”) the question was whether
the contract was one of agency or sale. This Court held that
the question will have to be determined having regard to the
terms and recitals of the agreement, the intention of the parties
as may be spelt out from the terms of the document and the
surrounding circumstances and having regard to the course of
dealings between the parties. While interpreting the terms of the
agreement, the Court has to look to the substance rather than
the form of it. The mere fact that the word “agent” or “agency”
is used or the words “buyer” and “seller” are used to describe
the status of the parties concerned is not sufficient to lead to
the irresistible inference that the parties did in fact intend that
the said status would be conferred. In this case, the point for
consideration was whether at the time when the appellant
was consuming high speed diesel oil and petrol for its own
purposes, was it doing so as the owner of these articles or
merely as an agent under an agreement with Caltex Company.
If the relationship was of an agent, then the usage of those
articles or properties by the appellant therein would amount to
a sale so as to be exigible to sales tax. On the other hand, if
the diesel or petrol was used by the appellant therein as an
owner of those articles, then sales tax would have been paid
by the appellant therein when property had passed on to it and
were received by the appellant therein.
16.1.1 In this context, this Court observed that a contract
of agency differs essentially from a contract of sale
inasmuch as an agent, after taking delivery of the
property, does not sell it as his own property but sells
the same as the property of the principal and under
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his instructions and directions. Furthermore, since
the agent is not the owner of the goods, if any loss is
suffered by the agent then he is to be indemnified by the
principal. It was further observed that while interpreting
the terms of the agreement, the Court has to look to
the substance rather than the form of it. Thus, the mere
formal description of a person as an “agent” or “buyer”
is not conclusive, unless the context shows that the
parties clearly intended to treat a buyer as a buyer and
not as an agent.
16.1.2 It was further observed on an examination of the terms
of the contract therein that Hispeedol (petroleum product)
had been sold to the appellant therein and not held by it
merely as an agent of the Caltex Company. Therefore,
the agreement therein contained some elements of
agency but having regard to the fact that the appellant
therein was consuming the Hispeedol or petrol for its
own purpose, it was acting as an owner of the goods
and if it consumed the same for its own purposes, it
was not doing so as agent but as owner which it was
fully entitled to do. Therefore, it would not constitute a
sale so as to be exigible to sales tax.
16.2 Reference could also be made to Sri Tirumala Venkateswara
Timber and Bamboo Firm vs. Commercial Tax Officer,
Rajahmundry, AIR 1968 SC 784, wherein this Court observed
that there is a distinction between a contract of sale and a
contract of agency by which the agent is authorised to sell
or buy on behalf of the principal. The essence of a contract
of sale is the transfer of title to the goods for a price paid or
promised to be paid. The transferee in such a case is liable to
the transferor as a debtor for the price to be paid and not as an
agent for the proceeds of the sale. The essence of agency to
sell is the delivery of the goods to a person who is to sell them,
not as his own property but as the property of the principal who
continues to be the owner of the goods, and will therefore be
liable to account for the sale proceeds. That in certain trades
the word “agent” is often used without any reference to the law
of principal and agent. But the true relationship of the parties in
such a case has to be gathered from the nature of the contract,
[2025] 2 S.C.R. 821

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

its terms and conditions, and the terminology used by the parties
is not decisive of the said relationship.
16.3 In Moped India Ltd. vs. Assistant Collector of Central
Excise, Nellore, (1986) 1 SCC 125, one of the questions was
whether the commission allowed in respect of different varieties
of mopeds to the dealers could be regarded as a trade discount
or not. The contention was that the commission allowed to the
dealers was a trade discount and was, therefore, liable to be
deducted in determining the excisable value of the mopeds. In
the agreement, the amount was referred to as “commission”
but the label given by the parties could not be determinative
because it was for the Court to decide whether the amount
was a “trade discount” or not, whatever be the name given
to it. Having regard to the terms of the agreement, this Court
held that it was on a principal to principal basis. That under
the agreement, mopeds were sold by the appellants therein
to the dealers and the dealers did not act as agents of the
appellants for the purpose of effecting sales on behalf of the
appellants therein. Having regard to various clauses of the
agreement considered in the said case, it was held that the
relationship between the appellants and the dealers therein
was on a principal to principal basis and therefore, the amount
allowed to the dealers in respect of different varieties of mopeds
was a trade discount. The appellants therein charged to the
dealers the price of the mopeds sold to them less the amount
of Rs.110, Rs.145 and Rs.165 as commission in respect of
different varieties of mopeds. These amounts allowed to the
dealers were clearly ‘trade discount’ liable to be deducted from
the price charged to the dealers for the purpose of arriving at
the excisable value of the mopeds.
16.4 In Alwaye Agencies vs. Deputy Commissioner of Agricultural
Income Tax and Sales Tax, (AIR 1988 SC 1250), the assessee-
firm was appointed as distributor by the Travancore Cochin
Chemicals Ltd. (Company) to effect the sale of certain chemical
manufactured by the said company in the area covered by the
Kerala State under an agreement entered into on 11.02.1967.
This Court examined whether under the agreement, the
assessee firm was an agent of the said company, or whether
under the agreement the assessee firm was really a purchaser
822 [2025] 2 S.C.R.

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of the goods which were booked by it. In the Agreement, the
stipulation was that the distributor had the right of the sale of the
product within the stipulated area. Bulk supplies were effected
in wagon load or lorry-load by the said company direct to the
customer, but only provided that the distributor arranged the
payment as per the agreement and also took the responsibility
to bear entirely the resultant effects and risk from the said
direct dispatches. Though the company had fixed the price
at which the goods were to be sold to the customers, it did
not lead to the conclusion that the distributor was merely an
agent. Under the agreement, what the distributor received was
described as a “rebate” and not a “commission” as one would
normally accept in the agreement of agency. Significantly, the
supplies were made to the distributor against payment either
immediate or deferred as provided in the agreement, and even
when the goods were destined directly to the customer, it was
the distributor who had to guarantee to arrange the payment.
That where there was some time lag between the sending of
the goods and the payment, the goods were to be insured at
the cost of the assessee therein. This Court observed that
this circumstance clearly showed that in respect of the goods
dispatched under orders placed by the distributors, the latter
really acted as purchasers of the goods which they in turn
sold to the customers and did not merely act as agents of the
said company. That in respect of these transactions, the goods
dispatched passed to the distributor on the bills being endorsed
and handed over to the distributors. Consequently, the appeal
was dismissed.
16.5 This Court considered the nature of the agreement being one of
sale or one of sole selling agency in the case of Snow White
Industrial Corporation vs. Collector of Central Excise,
(1989) 3 SCC 351. One of the clauses of the agreement was
that unsold stocks lying with the seller (Gillanders) had to be
returned to the appellants therein at the time of termination of
contract by either of the parties. In the aforesaid context, it was
held that the agreement was for a sole selling agency and not
as an outright sale.
16.6 In M.S. Hameed vs. Director of State Lotteries, (2001) 249
ITR 186 (Ker), the facts were that the petitioner therein received
[2025] 2 S.C.R. 823

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

in bulk quantities of lottery tickets from the State Government.
They were given a discount which was on a slab system, such as
for the purchase of 50,001 and above tickets, there was a 28%
discount. The petitioners contended that the tickets purchased
were thereafter distributed to other agents and sub-agents on
commission basis. That after purchase of the tickets, it was not
for the Government to look out as to how they were distributed
and there was no control over the affairs thereafter. That there
was only payment of the price of the ticket fixed as payable by
the principal, and no commission or discount was paid to them
by the Government. That Section 194G of the Income Tax Act,
which imposes liability on the person responsible for paying to
any person who is or has been stocking, distributing, purchasing
or selling lottery tickets, any income by way of commission,
remuneration, on such tickets in all amounts exceeding Rs.1000,
to deduct income tax thereon at the rate of 10%, had no
application. Hence, the demand of tax was without jurisdiction.
The Kerala High Court considered the question whether the
amount received as commission or discount or any incentive
or as a margin is income or earning which was taxable at the
hand of the assessee concerned, coming under the purview
of Section 194G of the Income Tax Act. It was observed that
if the face value of the lottery ticket was Re. 1, the petitioner
therein would receive it at Rs. 0.72 paise and could sell at any
price and it was not the State’s business to enquire into the
matter at all. It was observed that the deduction under Section
194G was on any person responsible for paying to any person
any income by way of commission, etc. who purchased or sold
or stocked lottery tickets, in this case, the State Government.
The deduction was to be made at the time of credit of such
income to the account of the payee or at the time of payment
of such income. The Kerala High Court observed that when the
deduction is contemplated at the time of the payment to the
person concerned but it is shown that there was no payment
to the agent at the time of purchase of the ticket, the section
automatically becomes inapplicable. That the ticket is given
on a discount of 28%, can by no imagination be pressed into
service for an interpretation that, nonetheless, 10% of 28 paise
is deductible as tax. Thus, it was held that Section 194G was
not applicable. The Kerala High Court held that since the lottery
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Supreme Court Reports

tickets were sold at a discounted price, the purchasers were
sought to be taxed as agents which could not be the case as
there was no transaction under an agency and the petitioner
therein were not liable to be covered under Section 194G of
the Income Tax Act.
16.7 Ahmedabad Stamp Vendors Association vs. Union of India,
(2002) 257 ITR 202 (Guj), raised a question with regard to
whether, the petitioners therein being stamp vendors were agents
of the State Government who were being paid commission
or brokerage or whether the sale of stamp papers by the
Government to the licensed vendors was on principal to principal
basis involving a contract of sale. Reference was made to
Bhopal Sugar Industries Ltd. and also to the meanings of the
expressions “commission” and “discount”. The licensed vendors
have to pay for the price of the stamp paperless the discount at
the rates provided varying from 0.5% to 4%. It was not that the
stamp vendor collected the stamp papers from the Government,
sold them to the retail customers and then deposited the sale
proceeds with the Government less the discount. The liability
of the stamp vendor to pay the price less the discount was not
dependent upon or contingent to sale of stamp papers by the
licensed vendor. The licensed vendor was not entitled to get
any compensation or refund of the price if the stamp papers
were lost or destroyed. The crucial question was whether the
ownership in the stamp papers passed to the stamp vendor
when the Treasury Officer delivered stamp papers on payment
of price less discount. Clause (b) of sub-rule (2) of Rule 24
of Gujarat Stamps Supply and Sales Rules, 1987 indicated
that the discount which the licensed vendor had obtained
from the Government was on purchase of the stamp papers.
Consequently, it was held that the discount made available
to the stamp vendors under the provisions of the aforesaid
1987 Rules did not fall within the expression “commission” or
“brokerage” under Section 194H of the Income Tax Act, 1961.
16.8 In Bharti Cellular Limited (Now Bharti Airtel Limited) vs.
Assistant Commissioner of Income Tax, (2024) 8 SCC 608,
the assessees therein were cellular mobile service providers
and the issue related to the liability to deduct tax at source
under Section 194-H of the Income Tax Act, 1961 on the amount
[2025] 2 S.C.R. 825

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

which, as per the Revenue, was a commission payable to an
agent by the assessees under the franchise/distributorship
agreement between the assessees and the franchisees/
distributors. Though the matter was under the provisions of
the Income Tax Act and Section 194-H of the said Act which
imposes the obligation to deduct tax at source by any person
responsible for paying at the time of credit or at the time of
payment, whichever is earlier, to a resident, any income by
way of commission or brokerage, nevertheless, the law of
agency was considered. This was specially in the context of
the expression “acting on behalf of another person”. Referring
to Section 182 of the Contract Act which defines “agent”
and “principal”, it was observed that agency is a triangular
relationship between the principal, agent and the third party.
In order to understand the relationship, one has to examine
the inter se relationship between the principal and the third
party and the agent and the third party. In this regard, it was
observed that certain factors or aspects must be taken into
consideration while examining whether a legal relationship of
a principal and agent exists, as under:
(a) “The essential characteristic of an agent is the legal
power vested with the agent to alter his principal’s legal
relationship with a third party and the principal’s co-relative
liability to have his relations altered.
(b) As the agent acts on behalf of the principal, one of the
prime elements of the relationship is the exercise of a
degree of control by the principal over the conduct of the
activities of the agent. This degree of control is less than
the control exercised by the master on the servant, and is
different from the rights and obligations in case of principal
to principal and independent contractor relationship.
(c) The task entrusted by the principal to the agent should
result in a fiduciary relationship. The fiduciary relationship
is the manifestation of consent by one person to another to
act on his or her behalf and subject to his or her control,
and the reciprocal consent by the other to do so.
(d) As the business done by the agent is on the principal’s
account, the agent is liable to render accounts thereof to
826 [2025] 2 S.C.R.

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the principal. An agent is entitled to remuneration from
the principal for the work he performs for the principal.”
16.8.1 It was further observed that three other relevant
aspects or considerations should be noted. First, is the
difference between “power” and “authority”. The second
consideration is that the primary task of an agent is
to enter into contracts on behalf of his principal, or to
dispose of his principal’s property. The third consideration
is that the substance of the relationship between the
parties, notwithstanding the nomenclature given by the
parties to the relationship, is of primary importance.
16.8.2 In this case, three distinct relationships were considered
which are different from the relationship of an agency.
The first is the difference between an agent and a servant
which is not relevant for this case. Next, the difference
between a principal-agent and principal-principal
relationship was considered with reference to Bhopal
Sugar Industries Ltd. It was observed that an agent,
after taking delivery of the property, does not sell it as
his own property but sells the same as the property of
the principal and under his instructions and directions.
Therefore, if the agent is not the owner of the goods
and if any loss is suffered by the agent, he is to be
indemnified by the principal. This is unlike a contract of
sale where title to the property passes on to the buyer
on delivery of the goods for a price paid or promised.
The buyer then becomes the owner of the property and
the seller has no vestige of title left in the property. Third
is the case of independent contractor, wherein if the
party is concerned about acting for himself and making
the maximum profit possible, he is usually regarded as
a buyer or an independent contractor and not as an
agent of the principal. This would be true even when
certain terms and conditions have been fixed relating to
the manner in which the seller conducts his business.
16.8.3 Distinguishing the relationship of a principal with
independent contractor from that of an agency, it was
observed that an independent contractor is free from
[2025] 2 S.C.R. 827

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

control on the part of his employer, and is only subject
to the terms of his contract. On the other hand, an agent
is not completely free from control, and the relationship
to the extent of tasks entrusted by the principal to
the agent is fiduciary. Sometimes an independent
contractor looks like an agent from the point of view of
the control exercisable over him, but on an overview of
the entire relationship, it may not be an agency. It was
further observed that the distinction is that independent
contractors work for themselves even when they are
employed for the purpose of creating contractual relations
with the third persons. It was further observed that the
term “agent” should be restricted to one who has the
power of affecting the legal position of his principal
by the making of contracts, or the disposition of the
principal’s property; viz. an independent contractor who
may, incidentally, also affect the legal position of his
principal in other ways.
Agreements:
17. The relevant Clauses of the agreements which were adverted to
before this Court have been extracted above.
17.1 In the agreement dated 10.08.2009, the respondent-assessee
(M/s Future Gaming Solutions Pvt. Ltd.) is referred to as an
exclusive sole purchaser of the conventional weekly paper
lottery and bumper lottery with denomination of rupee one
organised by the Government of Sikkim on actual sold basis.
In consideration of the appointment of the respondent-assessee
herein as sole purchaser, a sum of Rs.8 crores (Rupees Eight
Crores) per annum had to be paid by the respondent-assessee
herein to the Government for the first year of the extended period
effective from 18.10.2009 to 17.10.2010 and a sum of Rs.10
crores (Rupees Ten Crores) per annum for the second year of
the extended period effective from 18.10.2010 to 17.10.2014.
This was the minimum payment that had to be made by the
sole purchaser to the Government of Sikkim for parting with
the lottery tickets. The sole purchaser had to provide in favour
of the Government of Sikkim with a bank guarantee of Rs.10
crores (Rupees Ten Crores) as a security deposit, which was
828 [2025] 2 S.C.R.

Supreme Court Reports

to deliver the tickets to the sole purchaser at the destination
as may be agreed upon.
17.1.1 Clauses (14) to (16) are significant in this agreement.
Clause (14) stated that the Government of Sikkim shall
deliver to and the sole purchaser shall take delivery
from the Government whole of the lottery tickets
printed for a draw of a particular scheme with a clear
understanding that if the sole purchaser was not able to
sell the whole tickets, he shall return the unsold tickets
to the Government within 15 days from the date of draw,
which would then be destroyed after verification. This
was to avoid any possible misuse of the lottery tickets
leading to questioning of a draw of lottery in a particular
scheme. That the wholesale prices of the tickets sold
was to be determined by the Government on the basis
of the prize amount, cost of paper, cost of printing, draw
expenses, transportation charges and the Government
share of revenue as fixed under clause (4) extracted
above. That the prices of the tickets could be changed
under certain circumstances. Also, the State Government
could realise the full payment of the tickets resold from
the sole purchaser at wholesale rates as per clause (14)
referred to above. The wholesale rate of the tickets sold
by the State Government to the sole purchaser had to be
paid after actually selling the same. That, for information
of the Government, the sole purchaser had to produce
monthly return of sales tax, if any, paid to the respective
State Governments wherever the tickets are sold.
17.1.2 That the sole purchaser could at his own cost and
expenses give publicity to Sikkim State lotteries through
various media platforms, both print and electronic,
without seeking any reimbursement from the State
Government. Further, the sole purchaser could appoint
stockists, selling agents or sellers for further resale in
different parts of the country on his own terms and at his
own risk and responsibility. That this did not entail any
privity of contract between the State Government and
such entities. As a result, the sole purchaser’s obligation
towards the State Government was not discharged
[2025] 2 S.C.R. 829

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

despite appointment of stockists, selling agents or other
sellers. Unclaimed prize was the property of the State
Government and the full accounts of unclaimed prizes
had to be rendered by the sole purchaser for prizes up to
Rs.5,000/- (Rupees Five Thousand). The sole purchaser
had to maintain proper books of accounts and get the
same audited and the State Government had the right
to inspect the books of accounts maintained by the sole
purchaser, if deemed necessary.
17.1.3 Having regard to the aforesaid terms and conditions
of this agreement including the nomenclature used to
describe the respondent-assessee herein, it clearly
emerges that the respondent-assessee was not an
agent of the State Government but purchased the
lottery tickets at his own risk for the purpose of selling it
through stockists, etc. The unsold lottery tickets had to
be returned to the State Government in order to avoid
misuse of the same and in order to ascertain the number
of tickets sold. The prices of tickets were determined
as wholesale prices which were as per clause (14) and
paid by the respondent-assessee herein to the State
Government in terms of clause (4).
17.2 Agreement dated 24.01.2015 between the State of Sikkim and
M/s. Future Gaming and Hotel Services Private Limited has
described the said assessee as a sole purchaser/distributor/
promoter. Clause (7) of the said agreement states that the sole
purchaser/distributor shall purchase the lottery tickets from the
Sikkim Government for further sales, and payments shall be
made by the sole purchaser or distributor to the Government for
such tickets as per the invoice raised by the Government. The
sale proceeds for sale of lottery tickets had to be credited by the
sole purchaser or distributor into the treasury etc. of the State of
Sikkim as per the invoice raised by the State Government on the
sole purchaser or distributor. The sole purchaser or distributor
had to deposit the sale proceeds ensuring Guaranteed Revenue.
Clause (10) of the agreement spoke of Minimum Guaranteed
Revenue which was Rs.15,00,12,800/- up to a turnover of
Rs.9000 crores per annum and on an additional turnover over
and above Rs.9000 crores per annum, the sole purchaser or
830 [2025] 2 S.C.R.

Supreme Court Reports

distributor had to pay 0.25 per cent of the additional turnover to
the Government of Sikkim. For that purpose, the sole purchaser
or distributor has to submit monthly turnover of the proceeds
of the sale of lottery/schemes to the Government of Sikkim by
15th of the succeeding month. The annual financial and systems’
audit of the various lottery schemes had to be conducted by
the Government to ensure that the Act and the Rules are not
violated. Also, the sole purchaser or distributor had to get its
accounts audited internally and have reconciliation of the records
from time to time. The sole purchaser or distributor had the
responsibility to indemnify the State Government against all
claims in relation to the sale of lottery tickets during the term
of the agreement.
17.3 The agreement dated 06.06.2016 between the State of Sikkim
and M/s Future Gaming and Hotel Services Private Limited
also describes the assessee as a sole purchaser/ distributor.
This agreement was stated to be in consonance with the
model agreement circulated by the Ministry of Home Affairs,
Government of India by letter dated 28.12.2011. Under the said
Agreement, all unsold tickets, if any, at the time of draw with the
sole purchaser or distributor had to be returned to the Director of
Lotteries, Government of Sikkim or the authorized officer. Also,
a statement of sold tickets for each draw of different schemes
had to be submitted by the Distributor to the Director of Lotteries
within nine days from the date of draw. Under this agreement
also, the distributor on its own terms and on its own risk and
responsibility had to appoint Area Distributors/Stockists to sell
the lottery tickets of the Government of Sikkim in discharge of
its obligation under the Agreement. This agreement also had
the guaranteed revenue clause under which the distributor had
to deposit the guaranteed revenue to the Government as per
their bid rate quoted in the tender.
17.4 We have perused the agreements between the Government
of Sikkim and the respondent-assessee with regard to online
computerised lottery. The clauses of the said agreement are
similar in substance to the clauses of the agreement with
regard to paper lotteries which have been discussed above.
Merely because the online agreement uses the expression
“marketing agent”, it would not imply that respondent-assessee
[2025] 2 S.C.R. 831

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

is an agent within the meaning of the expression under the
provisions of the Contract Act dealing with agency. Hence, on
a consideration of the agreements for the sale of online lottery
tickets in juxtaposition with the agreement for the sale of paper
lotteries, we find that there is a great similarity in the clauses of
the agreement and hence, agreement concerning sale of online
lottery tickets also is one between principal and principal and
not between principal and agent.
17.5 Recently, this Court in K. Arumugam observed that conducting
a lottery which is a game of chance, is an activity conducted by
the State and not a service being rendered by the State which
would enable the engaging of an agent such as respondents-
assessees herein for the purpose of rendering of such a service.
That the assessees who buy the lottery tickets on outright sale
basis have the burden of selecting them through stockists for
a profit as their business activity. The differential in the price
paid to the State for the lottery tickets that are made available
to the assessee to sell and the sale price is the profit of the
assessee. Thus, there is no promotion of the business of the
State which conducts lotteries as an agent. Consequently, there
is no principal-agent relationship, rather it is one of principal
to principal. The conclusions in K. Arumugam are apposite to
these cases also.

Controversy between the Parties:
18. The parliamentary amendments made to the Finance Act, 1994, for
the purpose of imposing service tax on the respondents-assessees
herein as ‘business auxiliary service’ under sub-section 19 of Section
65 of the said Act effective from 01.07.2003 and by way of the
insertion of the Explanation to Section 65(19)(ii) of the Finance Act,
1994 culminated in the judgment of this Court in K. Arumugam.
In the said case, this Court held that the relationship between the
Government of Sikkim and the assessees therein was not that of
principal and agent but one of principal and principal. Therefore, up
to the year 2010, the lis between the parties ended with the judgment
in K. Arumugam.
18.1 For the period from 01.07.2010 till 30.06.2012, amendment was
made to Section 65(105) by insertion of clause (zzzzn) which
defined promotion, marketing, organizing or in any other manner
832 [2025] 2 S.C.R.

Supreme Court Reports

assisting in organizing games of chance, including lottery, bingo
or lotto in whatever form or by whatever name called, whether
or not conducted through internet or other electronic networks
as a “taxable service”. The Sikkim High Court observed that
the said clause essentially means the conducting of lotteries
within the scope and ambit of betting and gambling as per Entry
62 - List II of the Seventh Schedule of the Constitution and
therefore, on the very same activity of betting and gambling,
service tax cannot be levied.
18.2 The High Court further held that when a sole purchaser/
distributor/promoter purchases the lottery tickets from the State
Government for the purpose of onward sales through stockists
etc., it was not acting as an agent of the State Government but
in its own right as a principal. Thus, the relationship between
the State Government and the sole distributor was one between
a principal and principal and not one between principal and
agent. That various clauses of the Agreement indicated that the
sole distributor was acting in its own right on purchase of the
lottery tickets for onward sales, having regard to the Lotteries
Act which is a Central Government legislation and bearing in
mind the faith of the general public/customers in the lottery
schemes conducted by the Government of Sikkim. It was only
for the above purposes that various clauses of the agreement
sought to enhance transparency in the lottery business, which
was a part of the revenue earning endeavours of the State of
Sikkim through various lottery schemes. In the circumstances,
the High Court set-aside the demands for payment of service
tax made by the Central Government.
18.3 At the same time, the Finance Act, 2012, by an amendment of
Finance Act, 1994, introduced the Negative List under Section
66D which comprised of various services on which no service
tax could be levied or collected. The List included the activity
of betting, gambling or lottery. Hence, no service tax on the
conduct of the lottery could be levied by the Central Government.
However, in 2015, another amendment was made to the Finance
Act, 1994 by substituting Explanation 2 in clause (44) of Section
65B, wherein the expression “transaction in money or actionable
claim” was defined to not include, inter alia, any activity carried
out, for a consideration, in relation to, or for facilitation of, a
[2025] 2 S.C.R. 833

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

transaction in money or actionable claim including the activity
carried out, inter alia, by a lottery distributor or selling agent in
relation to promotion, marketing, organizing, selling of lottery
or facilitating in organizing of lottery of any kind in any other
manner. The expression “lottery distributor or selling agent”
was defined by inserting clause (31A) to Section 65B to mean
a person appointed or authorized by a State for the purposes
of promoting, marketing, selling or facilitating in organizing
lottery of any kind, in any manner, organized by such State in
accordance with the provisions of the Lotteries (Regulation)
Act, 1998. Since “betting, gambling or lottery” was included
in the Negative List, an Explanation was inserted to Section
66D(i) to say that the said expression “betting, gambling or
lottery” shall not include the activity specified in Explanation 2
to clause (44) of Section 65B. Thus, the intent of the Parliament
was that any transaction in an actionable claim (lottery being
an actionable claim) would not include an activity carried out
for the distribution of lottery by the distributor. In other words,
such activity of the distributor would not amount to the activity
of betting, gambling or lottery.
18.4 We do not think that such a meaning could be attributed to
the activity of the distributor involved in the selling of lottery or
facilitating or organizing of lottery in any manner. The expression
“betting, gambling or lottery” in the Explanation to Section 66D(i)
has to be given its true intent and meaning as conducting a lottery
is nothing but an activity coming within the scope of betting and
gambling. This is by the application of the principle of noscitur
a sociis where the expression “lottery” takes its meaning from
“betting and gambling”. Although a lottery ticket is nothing but
an actionable claim, the conduct of a lottery scheme is nothing
but a betting and gambling activity. Therefore, it is only Entry
62 – List II which enables the imposition of tax by the State
Government. The activity of betting and gambling which includes
conducting of a lottery is regulated under Entry 34 – List II, with
Entry 62 – List II being the taxation entry.
18.5 By way of Finance Act, 2015, clause (a) of the Explanation
to Section 67 containing the definition “consideration” was
amended to include, inter alia, any amount retained by the lottery
distributor or selling agent from gross sale of lottery tickets in
834 [2025] 2 S.C.R.

Supreme Court Reports

addition to the fee or commission, if any, or, as the case may
be, the discount received, i.e., the difference in the face value
of the lottery ticket and the price at which the distributor or
selling agent gets that ticket. The said amendment would have
no consequence and bearing on the substantive provisions for
the reasons that we have stated above. This is because the
distributor buys at wholesale price from the State Government
and sells it at a higher price to the retailer.
18.6 Thereafter, the amendment made to clause [ii(a)] of the
Explanation 2 to Section 65B(44) in the year 2016 that the
expression “transaction in money or actionable claim” would
not include any activity carried out, for a consideration, in
relation to, or for facilitation of, a transaction in money or
actionable claim, including the activity carried out, inter alia,
by a lottery distributor or selling agent on behalf of the State
Government, in relation to promotion, marketing, etc. in
accordance with the provisions of the Lotteries (Regulation)
Act, 1998 is only an innocuous amendment which is only
cosmetic in nature.
18.7 In the circumstances, we find that at each stage, the
amendments made to the Finance Act, 1994, in order to
impose service tax on the sole distributor/purchaser of the
lottery tickets (respondents-assessees herein) have been
unsuccessful. We have reasoned that the amendment to the
said definition would in no way detract from the substance of
the relationship between the State Government and the sole
distributor or purchaser of the lottery tickets which is one of
principal to principal and not of principal-agent. There being no
agency and no service rendered by the respondents-assessees
herein as an agent to the Government of Sikkim, service tax
is not leviable on the transactions between the purchaser of
the lottery tickets (respondents-assessees herein) and the
Government of Sikkim.
19. The detailed analysis of the relevant provisions of the Finance Act,
1994, and amendments made thereto in light of the clauses of the
Agreements highlighted during the course of submissions as well
as the judgments of this Court, would not persuade us to take a
different view from what the Sikkim High Court has taken.
[2025] 2 S.C.R. 835

Union of India & Others v.
Future Gaming Solutions Pvt. Ltd. & Another Etc.

20. In view of the aforesaid discussion, we find no merit in the appeals
filed by the Union of India and others. Hence these appeals are
dismissed. The appeal filed by the assessee is disposed accordingly.
Parties to bear their own costs.

Result of the case: Appeals disposed of.

†
Headnotes prepared by: Nidhi Jain