TaxTMI 
TaxTMI 
2006 (4) TMI 118
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.... Katiyar, A. Desai, Ms. Meenakshi Ogra, Ms. Reena Bagga, K.K. Mani, K.B. Sandeep, D.S. Mahra, Subramonium Prasad, Jai Kishore, Abhay Kumar, R.K. Adsure, Ajay Siwach, P. Dahiya, Sandeep Sharma, T.V. George, Ms. Renu Sahgal, E. Abhar, S.K. Jain, Pradeep Agarwal, A.P. Dhamija, Ram Nivas, H.D. Thanvi, S. Singhania and B.K. Sharma for the parties. J U D G M E N T WITH CA. NO.4553-4557/1998, 4913, 6256-6260/1998, 177-179/1999, 2155/2000, 6893 of 2003 & SLP(c) Nos.2469, 2473, 2614, 2617, 2507, 2841, 5225-26, 5608, 11129, 11768 of 2000, W.P. (c) No.33/2002, 127/2005 & SLP (c) NOS.18466/2002, 16270/2001, 6907/2002, 17894/2002 RUMA PAL, J. By an order dated 13th October, 1999 in Sunrise Associates v. Government of NCT of Delhi & Ors. (2000) 1 SCC 420, the decisions of this Court in H. Anraj v. Government of Tamil Nadu (1986) 1 SCC 414 as well as Vikas Sales Tax Corporation & Anr. v. Commissioner of Commercial Taxes and Anr. (1996) 4 SCC 433 (in so far as it affirmed the decision in the H. Anraj) have been referred to this Bench for re-consideration. The question in H. Anraj was whether sales tax can be levied by States on the sale of lottery ti....
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.... works contract. The Constitution, although it defines 'goods' under Article 366((12) as 'including all materials, commodities and articles", contains no definition of the expression 'sale of goods'. The Court held that the expression 'sale of goods' in the entry cannot be construed in its popular sense and it must be interpreted in its legal sense. After considering various authorities as well as the provisions of the Sales of Goods Act, 1930, the Court held that the expression 'sale of goods' is what it means in the Sale of Goods Act, 1930. A contract for the sale of goods, according to Section 4(1) of the Sale of Goods Act, 1930 "is a contract whereby the seller agrees to transfer the property in goods to the buyer for a price". This classical concept of sale was held to apply to the entry in the legislative list in that there had to be three essential components to constitute a transaction of sale before tax could be imposed- namely, (i) an agreement to transfer title (ii) supported by consideration, and (iii) an actual transfer of title in the goods. In the absence of any one of these elements it was held tha....
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....such transfer, delivery or supply is made; Therefore in order to constitute a deemed sale within the meaning of Art. 366(29A) (a), there has to be 1) goods 2) a transfer of property in the goods 3) valuable consideration. The requirement of an agreement for sale is not necessary for constituting a sale under this sub-clause. The absence of any one of these elements would mean that the transaction far from being a sale within the Gannon Dunkerley definition, would not even be a deemed sale within the extended definition of sale under Art. 366(29A) (a). Following the Constitutional amendment, the States amended their respective Sales Tax Laws to incorporate the constitutional definition of tax on the sale or purchase of goods. The States of Tamil Nadu and West Bengal were no exception. The Tamil Nadu General Sales Tax Act 1959 and the Bengal Finance (Sales Tax) Act 1941 were both amended to incorporate new definitions of 'sale'. Section 2(j) and Section 2 (n) of the Tamil Nadu Act defined 'goods' and 'sale' as noted in H. Anraj thus: "2(j) 'Goods' means all kinds of movable property (other than newspapers, actiona....
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....e winner. It was contended that a sale of a lottery ticket was nothing more than a sale of a chance to win a prize, and therefore, it was merely a contingent interest in money. Alternatively it was submitted that the lottery tickets were in fact actionable claims within the meaning of Section 3 of the Transfer of Property Act, 1882, and therefore, outside the definition of "goods" under the Sales Tax Acts. The Court in H. Anraj came to the conclusion that the transfer of a lottery ticket upon consideration paid by the purchaser was not a mere contract creating an obligation or right in personam between the parties, but was in the nature of a grant. The Court noted the various definitions of the word "lottery" in dictionaries and authoritative text books and decisions of the Courts and held that a lottery was composed of three essential elements, namely; 1) chance 2) consideration; and 3) prize. As we have mentioned earlier, according to the learned Judges a sale of a lottery ticket conferred on the purchaser two rights viz. a) the right to participate in the draw and b) the right to claim a prize contingent upon the purchaser being su....
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..... As stated above lottery tickets which comprise such entitlement do constitute a stock-in-trade of every dealer and therefore his merchandise which can be bought and sold in the market. Lottery tickets comprising such entitlement, therefore, would fall within the definition of 'goods' given in the Tamil Nadu Act and the Bengal Act." The Court also rejected the submission of the counsel for the dealers that a sale of a lottery ticket does not involve the transfer of any right. The contention was that just as a company before it issues share capital does not hold any of the shares which come to exist only in the hands of the shareholders through subscribing for them, so in the case of a lottery the promoter sponsoring it, does not have the right to participate in the draw or the right to claim the prize. Since one cannot 'transfer' what one does not have, it was argued that there was no 'transfer' of any right by the promoter to the purchaser of the ticket. The submission was rejected on the ground that the analogy was inapt as Joint Stock Companies were governed by the provisions of the Company's Act and Memorandum of Art....
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....my opinion, can create such 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 .. I should, however, not be understood to accept the position that if private lotteries are permissible and legal, a point which need not be decided in these cases, in such cases sale of goods was involved or not." Both learned Judges, however, agreed that the right to participate in the draw under a lottery ticket was a valuable right and that 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 dealers merchandise and, therefore goods which are capable of being bought or sold in the market. The logical corollary of this was drawn by the Karnataka High Court in the case of Nirmal Agency v. Commercial Tax Officer 1992 (86) STC 450. Given the dual nature of the rights involved in a lottery as decided by H. Anraj, the High Court said that sales tax could be levied only on that part of the lottery ticket which had been held to amount to a transfer of goods. The ....
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....; the REP Licences/Exim Scrips are not in the nature of actionable claims." (para 35 pg.449) Relying on the decision in H. Anraj and Vikas Sales Corporation the Delhi High Court in the judgment on which the referral order has been passed, rejected a challenge to the constitutional validity of Section 4(1) (cc) of the Delhi Sales Tax Act, 1975 as introduced by the Delhi Sales Tax (Second Amendment) Act 1994 with effect from 2.1.1995. The amendment was challenged by the dealers on various grounds. It was argued inter alia that the sale of lottery tickets did not involve a sale of goods within the meaning of the Sales Tax Act, and that even if it did, only that right which was held to be a sale namely, the right to participate in the draw could be subject to Sales Tax. The value of the right to win the lottery prize would have to be segregated. The Delhi High Court rejected the submissions based on its reading of the decision in H. Anraj and Vikas Sales. We are not called upon to decide all the grounds taken by the appellants impugning the decision except to the extent that the High Court relied on the two decisions which are under recon....
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....ular thing was goods, was erroneous. It was pointed out that even actionable claims such as negotiable instruments and debentures may be freely transferable. As far as the DEPB is concerned, according to the appellants, it was in the nature of a notional credit which an exporter acquires on export by way of an entry in a passbook. This credit was utilizable by the importer to be adjusted against the import duty payable on goods imported. The credit was freely transferable but it could not be said to be goods only by that reason. At best it was an actionable claim. According to some appellants, the right to participate in a draw which was held to be a sale of goods by H. Anraj was only a right to services rendered by the lottery organizers. There was no transfer of any moveable property in the entire transaction. It was also submitted that when there were divisible elements in a contract, the predominant element would determine the nature of the right. As far as lottery tickets were concerned, the right to participate in the draw was overwhelmingly dominated by the element of the right to claim the prize by the prize winner....
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....d of movable property other than actionable claims and money. It was submitted that "actionable claim" as defined in Section 3 of the Transfer of Property Act, is substantially different from the concept of "chose in action" in English law and it was submitted that what is a 'chose in action' was not necessarily an actionable claim. The reasoning in Vikas Sales (supra) has been relied on, which it was urged, should be reaffirmed. The other appearing States have adopted the arguments made on behalf of the NCT, Delhi and Tamil Nadu and Maharashtra. It is necessary at this stage to clarify that the order of reference in Sunrise V. NCT, Delhi (supra) is limited to the question whether lottery tickets are 'goods'. We have not been called upon to answer the question whether REP licences (or the DEPB which has replaced the REP licences) are 'goods'. Although we have heard counsel at length on this, having regard to the limited nature of the reference, we do not decide the issue. The decision in Vikas Sales was referred to only because it approved the reasoning in Anraj and not because the referring Cour....
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....s the beneficial interest in movable property, that is to say that the right was not the movable property itself. D:Then again in paragraph 30 it was said:- "30. It is true that this entitlement to a right to participate in the draw is an entitlement to beneficial interest which is of incorporeal or intangible nature but that cannot prevent it from being regarded as goods". This again indicates that it is the right to participate in the draw which was being described as the goods. Otherwise it was not necessary to refer to other incorporeal rights which had been judicially recognized as goods for the purposes of levying sales tax such as copyrights or intangible rights such as electricity. Ultimately, however, clarity in the matter is brought about by the concurring judgment of Justice Sabyasachi Mukharji (as his Lordship then was), when he said:- "I, however, agree with my learned brother that the 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 ....
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....'goods' in the State Sales Tax Laws have uniformly excluded, inter alia, actionable claims from the definition for the purposes of the Act. Were actionable claims etc., not otherwise includible in the definition of 'goods' there was no need for excluding them. In other words, actionable claims are 'goods' but not for the purposes of the Sales Tax Acts and but for this statutory exclusion, an actionable claim would be 'goods' or the subject matter of ownership. Consequently an actionable claim is movable property and 'goods' in the wider sense of the term but a sale of an actionable claim would not be subject to the sales tax laws. Distinct elements are deducible from the definition of 'actionable claim' in Section 3 of the Transfer of Property Act. An actionable claim is of course as its nomenclature suggests, only a claim. A claim might connote a demand, but in the context of the definition it is a right, albeit an incorporeal one. Every claim is not an actionable claim. It must be a claim either to a debt or to a beneficial interest in movable property. The beneficial interest is not the movable prop....
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....y is therefore not the point of distinction between actionable claims and other goods which can be sold. The distinction lies in the definition of actionable claim. Therefore if a claim to the beneficial interest in movable property not in the vendee's possession is transferred, it is not a sale of goods for the purposes of the sales tax laws.An actionable claim would include a right to recover insurance money or a partner's right to sue for an account of a dissolved partnership or the right to claim the benefit of a contract not coupled with any liability (see Union of India V. Sarada Mills (1972) 2 SCC 877, 880). A claim for arrears of rent has also been held to be an actionable claim (State of Bihar V. Maharajadhiraja Sir Kameshwar Singh 1952 SCR 889, 910). A right to the credit in a provident fund account has also been held to an actionable claim ( Official Trustee, Bengal v. L. Chippendale, AIR 1944 (Cal.) 335; Bhupati Mohan Das v. Phanindra Chandra Chakravarty & Anr. AIR 1935 (Cal.) 756). In our opinion a sale of a lottery ticket also amounts to the transfer of an actionable claim. A lottery ticket has no value in itself. It is a mere piece of pap....
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.... 'goods' under the Sale of Goods Act and the Sales Tax statutes. This was also accepted in H.Anraj when the Court said that to the extent that the sale of a lottery ticket involved a transfer of the right to claim a prize depending on chance, it was an assignment of an actionable claim. Significantly in B.R. Enterprises V. State of U.P.and Ors. (1999) 2 SCC 700 construing H.Anraj the Court said "52. So, we find three ingredients in the sale of lottery tickets, namely, (i) prize, (ii) chance, and (iii) consideration. So, when one purchases a lottery ticket, he purchases for a prize, which is by chance and the consideration is the price of the ticket". The further distinction sought to be drawn in H.Anraj between the chance to win and the right to participate in the draw was in our opinion unwarranted. A lottery having been held to be in essence a chance for a prize, the sale of a lottery ticket can only be a sale of that chance. There is no other element. Every right can be sub-divided into lesser rights. When these lesser rights culminate in a legally recognizable....
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.... that moveable property was. The draw could not and was not suggested to be the moveable property. The only object of the right to participate would be to win the prize. The transfer of the right would thus be of a beneficial interest in movable property not in possession. By this reasoning also a right to participate in a lottery is an actionable claim. We may with profit compare the views of other countries having similar systems of law as our own as to whether the sale of a lottery ticket is a sale of goods or an actionable claim. The High Court of Australia had held in Van Rassel v. Kroon [1953] HCA 3: (1953)87 CLR 298 (4 March 1953): "The person in whose name the lottery ticket issues obtains the legal title to what is a chose in action". In Jones Vs. Carter 8 Q.B. 134 a lottery was held regarding the outcome of a horse race. The subscribers paid a sum of money and then drew lots. On each lot was written the name of a horse. If that horse won, the subscriber with the name of that winning horse got a prize. The original subscriber sold his ticket to Jones. The horse named on that ticket won the race. When Jones a....