1985 (10) TMI 258 - SC - VAT and Sales Tax

Supreme Court rules lottery tickets taxable as goods, strikes down Tamil Nadu exemption notification

H. Anraj Versus Government of Tamil Nadu & Shri Dipak Dhar and Others Versus The State of West Bengal and Another

The Supreme Court upheld the State Legislatures' competence to levy sales tax on lottery tickets, considering them as 'goods.' However, the Court ... Whether sales tax can be levied by a State Legislature on the sale of lottery tickets in the concerned State? Held that:- The promoter of lottery in the cases involved before us is the State and the grant is in derogation of the rights of the State. The State, in my opinion, can create such a right for the first time, and such transfer of the right by the State as a promoter would amount to a transfer of property and being in consideration of a price can be sale of goods. Right to participate in the draw under a lottery ticket remains a valuable right till the draw takes place and it is for this reason that licensed agents or wholesalers or dealers of such tickets are enabled to effect sales thereof till the draw actually takes place and therefore lottery tickets, not as physical articles but as slips of paper or memoranda evidencing the right to participate in the draw can be regarded as dealer's merchandise and therefore goods which are capable of being bought or sold in the market. With these observations, I respectfully agree with the conclusion reached by my learned brother and concur with the order proposed by him. Issues Involved:1. Legislative competence to levy sales tax on lottery tickets.2. Nature of lottery tickets as 'goods' or 'actionable claims.'3. Validity of the Tamil Nadu Government's exemption notification under Articles 14, 19(1)(g), 301, and 304(a) of the Constitution.Detailed Analysis:1. Legislative Competence to Levy Sales Tax on Lottery Tickets:The primary issue is whether State Legislatures have the competence to levy sales tax on the sale of lottery tickets under Entry 54 of List II of the Seventh Schedule of the Constitution, which pertains to 'Taxes on the sale or purchase of goods.'The court observed that the subject of 'lotteries' falls under Entry 40 of List I (Union List), but in the absence of any parliamentary law, states could organize lotteries under Article 258(1) of the Constitution. The Tamil Nadu and West Bengal Governments organized state lotteries and sought to levy sales tax on lottery tickets by amending their respective sales tax acts.The dealers contended that lottery tickets represent an actionable claim and not 'goods,' and thus, the levy of sales tax on their sale is beyond the legislative competence of the State Legislatures. They argued that a lottery ticket is merely a slip of paper evidencing a right to claim a prize, which is an actionable claim and not 'goods' as defined under the Sale of Goods Act, 1930.The court held that a lottery ticket confers two rights on the purchaser:- A right to participate in the draw.- A right to claim a prize if successful in the draw.The right to participate in the draw is a beneficial interest in movable property and is considered 'goods.' Therefore, the sale of lottery tickets involves the transfer of property in goods, making the levy of sales tax on their sale within the legislative competence of the State Legislatures under Entry 54 of List II.2. Nature of Lottery Tickets as 'Goods' or 'Actionable Claims':The court examined whether lottery tickets are 'goods' or 'actionable claims.' 'Goods' are defined under Section 2(7) of the Sale of Goods Act, 1930, as every kind of movable property, excluding actionable claims and money.The court concluded that the right to participate in a lottery draw is a beneficial interest in movable property and thus constitutes 'goods.' Although the right to claim a prize is an actionable claim, the right to participate in the draw is a present, tangible right, making lottery tickets 'goods' for the purpose of sales tax.3. Validity of the Tamil Nadu Government's Exemption Notification:The petitioners challenged the Tamil Nadu Government's Notification G.O. Ms. No. 219 dated March 31, 1984, which exempted Tamil Nadu lottery tickets from sales tax, arguing that it violated Articles 14, 19(1)(g), and 301 read with Article 304(a) of the Constitution.Article 301 guarantees freedom of trade, commerce, and intercourse throughout India, subject to other provisions of Part XIII of the Constitution. Article 304(a) allows State Legislatures to impose taxes on goods imported from other states, provided there is no discrimination against such goods.The court held that the notification resulted in discriminatory treatment against lottery tickets imported from other states, as Tamil Nadu lottery tickets were effectively exempt from sales tax, while tickets from other states were subject to tax. This discrimination hampered the free flow of trade and commerce, violating Article 301 read with Article 304(a).The court struck down the notification as unconstitutional, upholding the validity of the amendments to the Tamil Nadu General Sales Tax Act, 1959, and the Bengal Finance (Sales Tax) Act, 1941, but invalidating the exemption notification.Conclusion:The Supreme Court upheld the legislative competence of the State Legislatures to levy sales tax on the sale of lottery tickets, recognizing them as 'goods.' However, the court invalidated the Tamil Nadu Government's exemption notification for being discriminatory and violative of Article 301 read with Article 304(a) of the Constitution. The writ petitions were partly allowed, and the civil appeal was dismissed.