M.S. ASSOCIATES Vs. CST

JUDGEMENT

(1.) WE have been hearing this matter consistently from 18.3.2009. In the meantime both parties requested for genuine causes, to adjourn the matter. Accordingly adjournments were allowed and the matter has reached on the board today for hearing. We had occasion to hear similar such matters on 30th May, 2009 in the case of N.V. Marketing Pvt. Ltd. and passed a detailed order in that case considering submission of both the sides. Today, we hear similar such arguments from both the sides. In the present case, we noticed that service tax demand of Rs. 19,09,26,997/ - and education CESS of Rs. 14,75,112/ - aggregating to Rs. 19,24,02,109/ - has been made. Ld. Counsel Shri S.K. Pahwa, has filed a synopsis about the salient features of the business. According to him, M.S. Associates conducted activity of lottery for the State of Meghalaya. This activity was carried out in terms of Agreements executed on 23.4.2002 being superseded by another Agreement dated 7.9.2000. Besides, he submits that terms of the Agreement requires the appellants to make a payment of Rs. 30,000/ - in respect of every draw to the State of Meghalaya and draws of less than Rs. 5001/ - were to be distributed to the distributor from the sale proceed of the ticket. The price of ticket realised shall be property of the State. But name of the lottery scheme is selected by the appellant. Tickets are printed online through computerizing system and the lottery is conducted under a statute namely Lottery Regulations Act 1998. He submits that revenue has brought the activities of the appellant to the purview of tax under the category of business auxiliary service holding that the transaction to be promotion and marketing services provided by the client, service information to customer care services, incidental or auxiliary activities such as billing of collection, recovery of collection etc. He submits that the contract does not permit to hold that the appellant provided any service of business auxiliary category. He prays for waiver of pre -deposit during pendency of the appeal.

(2.) LD . DR appearing for Revenue has certain principal issues apart from the issues we have heard from revenue yesterday. Lottery can be conducted either by Union or the State. The proceeds of the Lottery goes to Consolidated Fund of the State. The lottery organizers make a cut out of the proceeds and keep with them towards their remuneration. They pay a fixed sum as agreed in the Agreement. He draws our attention to page 23, 24, 25 and 36 of the paper book Vol. No. 3. Relying on these documents, his averment is that when the State controls the lotteries, and proceeds thereof are of the property of the States, the Lottery organizers merely support the activity of the States for marketing lottery tickets. They should be covered by business auxiliary service under Clause (19) of Section 65 of Finance Act 1994. He specifically submits that when Govt. of Meghalaya expressly states in the Agreement that they control the activity of Lottery Agency, the Agency merely supports the State through the marketing net work. He submits that the matter heard yesterday and the order passed may not be construed to have any precedential value while judging the matter today. In order to safeguard interest of revenue the activity being carried out by a partnership principal, pre deposit may be directed.

(3.) WHEN we specifically enquired from both sides about the application of explanation inserted to Sub -clause (ii) of Section 65(19) of the Finance Act 1994, the submission of the revenue is that the explanation should be read as a Legislation with retrospective effect. Contrary is the view of the appellant. On the different versions, we are very serious about the demand of service tax in question which is Rs. 19,24,02,109/ -. If there had been no explanation, we would not have a second thought. But in view of insertion of the explanation to Section 65(19)(ii) of Finance Act, 1994 that leaves a doubt as to its retrospectivity or prospectively. We have already stated yesterday that there is no intendment about tax nor there is equity. The subject of state should be brought to the ambit of the tax by express provision of law. The explanation if intended to bring the appellants to fold of law retrospectively that would have reflected legislative intent by some means since that may effect the right of the appellant. This does not appear to be a curable measure. Therefore, the matter needs thorough examination on the touch stone of the law. Having taken view yesterday, to waive pre deposit we do not prefer to differ today and direct waiver of pre -deposit in this case also during pendency of the appeal. However considering gravity of the matter, we grant liberty to both the sides to make application for early hearing of the matter. It would be preferable to list this appeal alongwith appeal No. ST/594/08 in the case of N.V. Marketing Pvt. Ltd. v. CCE, Delhi for analogous hearing so that the matter may come to a logical conclusion.