Recently, India’s Supreme Court has ruled that lottery, gambling, and betting activities are subject to taxation under the Goods and Services Tax (GST) Act of 2017. This decision emerged from several pleas brought forward by lottery dealers who questioned the Central Government’s classification of lottery as ‘goods’.
A Response to Challenges on the Validity of GST on Lotteries
Opposing the Section 2 (52) of the Act and subsequent tax notifications on lottery, the petitioners argued that this law was a violation of fundamental rights. They referenced an earlier decision in the Sunrise Associates Vs. Government of NCT of Delhi 2006 case which established lotteries as ‘actionable claims’, not goods.
The Verdict: GST Applies to Lottery, Betting, and Gambling Activities
The SC decided that lottery, betting, and gambling indeed fall within the definition of goods according to Section 2 (52) of the Central Goods and Services Tax Act, 2017. It stated that applying GST on lotteries does not constitute hostile discrimination.
According to Schedule III of the CGST Act 2017, actionable claims excluding lottery, betting, and gambling are neither categorized as supply of goods nor supply of services. The court maintained the Parliament’s right to broaden the term ‘goods’ to include such actionable claims.
In Accordance with Constitutional Provisions
The court further clarified that Article 246A of the Constitution fully authorizes the Parliament to legislate laws regarding goods and services tax. It also affirmed that the extensive definition of goods given in Section 2 (52) is not contradictory with the Constitution.
Understanding Actionable Claims
An actionable claim refers to any debt except one secured by mortgage of immovable property or hypothecation or pledge of movable property. Hypothecation refers to the pledging of an asset as security for a loan. Only activities related to lottery, betting, and gambling are subject to GST.
Examples of actionable claims include insurance policies not secured by way of mortgage or hypothecation or pledge and claims for arrear of rent, provident fund, unsecured debt, and profit by a partner in a firm.
Indian Laws Governing Lottery, Gambling, and Betting Activities
Various Central laws pertain to these activities. The Lotteries Regulation Act, 1998, recognizes lottery as legal, provided it is organized by the state government.
The Indian Penal Code, 1860, has provisions that could be invoked if obscene advertising is used for promoting betting and gambling activities. The Prize Competitions Act, 1955, defines prizes in competitions, while the Foreign Exchange Management Act, 1999, prohibits remittance of income generated from lottery winnings and similar activities.
The Information Technology Rules, 2011, prevents network service providers from hosting content supporting gambling. The Income Tax Act, 1961, ensures taxation policy caters to all types of gambling industries, indirectly or directly contributing to India’s Gross Domestic Product (GDP).
