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An explanation cannot enlarge the scope of a provision
Facts
The Appellant, a lottery distributor purchased lottery tickets from the State Government and thereafter, sold them to stockists and resellers after adding profit margin. This Court in the Appellant’s own case under the earlier provisions of law had already held that the activity of promoting, marketing, organising or in any other manner assisting in organising games of chance including lottery, was an activity falling under the expression “betting and gambling” which is in the domain of the State Legislature and the Centre had no power to tax such an activity. Post the judgement, in the Finance Act 2015, an explanation had been inserted in the definition of service to enlarge the definition as to cover the activities of lottery distributors.
Held
The High Court observed that, the principal requirement of the definition of ‘service’ is that the activity should be carried out by one person for another and such activity should be for a consideration. Since the Appellant was acting in a principal to principal relationship with the State Government buying and selling the lottery tickets and was not rendering any service to the state, the activity could not fall in the definition of ‘service’ per se. It was further held that, if an activity is not covered in the definition of ‘service’, then the same cannot be made taxable by way of an insertion of explanation, as an explanation cannot enlarge the scope of a provision. Accordingly, explanation was declared to be ultra vires and struck down.
