The Supreme Court observed that the sale of lottery tickets by a State Government is not classified as a service but rather an activity aimed at generating additional revenue.

Consequently, wholesale lottery purchasers are not engaged in promoting or marketing any service provided by the State and, therefore, do not incur service tax liability under the category of "business auxiliary service."

The appellants before the Supreme Court were wholesale lottery purchasers who buy lottery tickets in bulk from the State at a discounted rate and then sell them to retailers at a markup.

The issue before the Court was whether the lottery wholesalers were obligated to pay service tax under the category of 'business auxiliary service' according to the Finance Act, 1994. The tax authorities argued that the appellants' activities constituted "promotion or marketing of services provided by the client," which falls under the definition of "business auxiliary service" as per Section 65(19) of the Finance Act, 1994.

A bench consisting of Justices B.V. Nagarathna and N. Kotiswar Singh noted that no "business auxiliary service" existed between the State and the appellants during the sale of the lotteries. Therefore, the Court ruled that no service tax could be imposed or demanded from the appellants.

The appellants contested the judgments of the Kerala and Sikkim High Courts, which had dismissed their challenges. They argued that the profit earned from the difference between the purchase price and the face value of the tickets did not constitute a 'taxable service'.

According to the appellants, an outright purchase of lottery tickets does not involve any service to the State related to promotion or marketing, as outlined in the Explanation to Section 65(19)(ii) of the Finance Act, 1994, as amended by the Finance Act, 2008. Thus, it should not be considered a taxable service.

Accepting the appellant's contention, the Court said that since there was no service rendered to the state in terms of promoting or marketing the lotteries therefore a service tax cannot be levied or demanded on the sale of the lottery tickets.

The Court held that the High Courts erred by not acknowledging the definition of goods as outlined in the Sale of Goods Act, 1930, which excludes actionable claims from the definition of goods. Consequently, since lotteries are classified as actionable claims, they cannot be categorized as goods under Section 65(19)(i) of the Finance Act, 1994. Thus, service tax could not be levied or demanded from the appellants.

Accordingly, the appeals were allowed, and the impugned judgments of the High Courts of Sikkim and Kerala were set aside.

For Appellant(s) Mr. B. Krishna Prasad, AOR M/S. Parekh & Co., AOR Mr. Gautam Narayan, AOR Ms. Asmita Singh, Adv. Mr. Anirudh Anand, Adv. Mr. Tushar Nair, Adv. Mr. S. Ganesh, Sr. Adv. Ms. Rohini Musa, AOR Mr. Mukunda Rao, Adv. Mr. Nipun Katyal, Adv. Mr. George Poonthottam, Sr. Adv. Mr. Atul Shankar Vinod, Adv. Mr. Dileep Pillai, Adv. Mr. Kannan Gopal Vinod, Adv. Mr. M. P. Vinod, AOR Mr. Chirag M. Shroff, AOR Mr. Dhananjay Kataria, Adv. Mr. Raj Bahadur Yadav, AOR Mr. Mukesh Kumar Maroria, AOR

For Respondent(s) Mr. A.R. Madhav Rao, Adv. Mr. Arjun Garg, AOR Mr. Aakash Nandolia, Adv. Ms. Sagun Srivastava, Adv. Ms. Kriti Gupta, Adv. Mr. Arvind Kumar Sharma, AOR Mr. Raj Bahadur Yadav, AOR Ms. Usha Nandini V., AOR Mr. Biju P. Raman, Adv. Mr. John Thomas Arakal, Adv. Mr. Gautam Narayan, AOR Ms. Asmita Singh, Adv. Mr. Anirudh Anand, Adv. Mr. Tushar Nair, Adv. Mr. Vikramjit Banerji, A.S.G. Mr. Arijit Prasad, Sr. Adv. Mrs. Nisha Bagchi, Adv. Mr. Mukesh Kumar Maroria, AOR Mr. Shubhendu Anand, Adv. Mr. Meru Sagar Samantaray, Adv. Mr. Annirudh Sharma Ii, Adv. Mr. G. S. Makker, Adv. Mr. Mukunda Rao Angara , AOR Ms. Rohini Musa, AOR Mr. B. Krishna Prasad, AOR Mr. Raghvendra Kumar, AOR Mr. Anand Kumar Dubey, Adv. Mr. Nishant Verma, Adv. Mr. Simanta Kumar, Adv. Mr. Maneesh Pathak, Adv. Ms. Harsha Sharma, Adv. Mr. Devvrat Singh, Adv. Mr. Jainendra Kumar, Adv. Mr. Varun Singh, Adv. Mr. Sameer Abhyankar, AOR Mr. Kushagra Aman, Adv. Mr. Aakash Thakur, Adv. Mr. Rahul Kumar, Adv. Ms. Ayushi Bansal, Adv. M/S. Arputham Aruna And Co, AOR Mr. C. K. Sasi, AOR Ms. Meena K Poulose, Adv. Ms. Anupriya, Adv.

Case Title: K. ARUMUGAM VERSUS UNION OF INDIA & OTHERS ETC., CIVIL APPEAL NOS.2842-2848 OF 2012 (and connected matters)