2006 (7) TMI 323 - SC - VAT and Sales Tax

Court rules lottery tickets not 'goods' under Sales Tax Acts, impacting tax collections and costs

The High Court held that the impugned notifications under the U.P. Trade Tax Act, 1948 were invalid due to non-compliance with legislative requirements. ... Whether direction declaring clause (c-1) of sub-section (1) of section 3A of the U.P. Trade Tax Act, 1948 inserted by U.P. Act No. 31 of 1995 of imposing sales tax on the sale of lotteries was ultra vires? Held that:- The learned Senior Counsel appearing for the respondent fairly concedes that respondents would not claim any refund of the tax, already paid but they would not be liable to pay any further tax. Appeal is dismissed. Neither the State will be liable to refund the tax, already collected nor collect any further tax for the period prior to the date of the judgment. Issues:1. Validity of clause (c-1) of sub-section (1) of section 3A of the U.P. Trade Tax Act, 1948.2. Imposition of sales tax on the sale of lotteries.3. Interpretation of the term 'goods' under Sales Tax Acts.4. Prospective overruling and its implications.5. Refund of tax collected and collection of further tax.Analysis:1. The writ petitioners challenged the validity of clause (c-1) of sub-section (1) of section 3A of the U.P. Trade Tax Act, 1948, inserted by U.P. Act No. 31 of 1995, as ultra vires. The High Court held that the impugned notifications were invalid as they were not placed before both houses of the Legislature as required by the Act.2. The State imposed sales tax on the sale of lotteries based on a previous judgment that considered lottery tickets as goods. The judgment in H. Anraj v. Government of Tamil Nadu [1986] 1 SCC 414 distinguished between the right to participate in the draw and the chance to win, allowing tax on the former but not the latter. However, the Supreme Court, in the case of Sunrise Associates v. Government of NCT of Delhi, overruled this distinction prospectively, holding that lottery tickets do not qualify as 'goods' under Sales Tax Acts, and tax should only be levied on the sale of actual goods.3. The interpretation of the term 'goods' under Sales Tax Acts was crucial in determining the taxability of lottery tickets. The court clarified that lottery tickets do not fall under the definition of goods, emphasizing that tax should be imposed only on actual goods and not on actionable claims like the chance to win associated with lottery tickets.4. The principle of prospective overruling was applied in this case, following the precedent set in the case of Somaiya Organics (India) Ltd. v. State of U.P. The court explained that prospective overruling does not entitle parties to refunds for taxes collected in the past but prevents the collection of further taxes based on the invalidated provision. The court's decision had implications for both the State and the taxpayers, ensuring that no further tax would be collected based on the overturned interpretation.5. The judgment concluded that the appeal was dismissed, and neither the State nor the taxpayers would be liable to refund the tax already collected or pay any further tax for the period before the date of the judgment. Each party was directed to bear its own costs, bringing finality to the legal dispute over the imposition of sales tax on lottery tickets.