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THE Supreme Court has ruled that no service tax can be levied on the sale, promotion and marketing of lottery tickets. A bench comprising Justice SB Sinha and Justice Cyriac Joseph upheld the Sikkim High Court's order that quashed the excise department's notice demanding service tax worth over Rs 2,000 crore from Coimbatore-based Martin Lottery Agencies (MLA) between July 2003 and December 2006.
"We have no other option but to hold that the high court judgement, albeit for different reasons, warrants no interference," the bench said while dismissing the Centre's appeal. It also imposed a cost of Rs 1 lakh on the government.

Typically, MLA and other agents buy lottery tickets in bulk and sell them to their principal stockists. They make a profit out of the difference between the amounts received from the principal stockists and the amounts paid to the state government. The principal stockists subsequently sell the tickets to sub-stockist who in turn sell to their agents.

The entire transaction is governed by the Lottery (Regulation) Act, 1998. According to a Central Board of Excise and Customs (CBEC) circular issued on January 14, 2007, the nature of transactions between the distributor and the state government does not constitute a sale.

However, the government said the activities of the distributor were that of promotion or marketing of lottery tickets for their client, i.e., the state governments and, thus, would be eligible for service tax.

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