2020 (12) TMI 140 - SC - GST

Levy of tax on lotteries - legality of definition of goods under Section 2(52) of Central Goods and Services Tax Act, 2017 and consequential notifications to the extent it levies tax on lotteries - petitioner seeks declaration that the levy of tax on lottery is discriminatory and violative of Articles 14, 19(1)(g), 301 and 304 of the Constitution of India. Whether the writ petition is not maintainable under Article 32 of the Constitution of India since the writ petition relates to lottery, which is res extra commercium and the petitioner cannot claim protection under Article 19(1)(g)? - HELD THAT - The writ petition alleging the violation of Article 14 specially with respect to a parliamentary Act can very well be entertained under Article 32. Also, with regard to the matter of lottery itself, this Court had entertained a writ petition earlier under Article 32. Reference is made to judgment of this Court in H. Anraj and Ors. Vs. State of Maharashtra, 1984 (1) TMI 336 - SUPREME COURT where the writ petitioner, who were agents for the sale of tickets for the lottery filed a writ petition questioning the ban imposed on the sale of lottery tickets within the State of Maharashtra. Even judgment of this Court in H. Anraj Vs. Government of Tamil Nadu, 1985 (10) TMI 258 - SUPREME COURT was also a writ petition, which was heard alongwith a civil appeal questioning the leviability of the sales tax by the State Legislature on the sale of lottery tickets - thus, the grounds, which have been raised in the writ petition, the writ petition cannot be said to be not maintainable under Article 32 and the preliminary objection made by the learned ASG that the writ petition cannot be entertained under Article 32 and is overruled. Whether the inclusion of actionable claim in the definition of goods as given in Section 2(52) of Central Goods and Services Tax Act, 2017 is contrary to the legal meaning of goods and unconstitutional? - Whether the Constitution Bench judgment of this Court in Sunrise Associates (supra) in paragraphs 33, 40, 43 and 48 of the judgment has laid down as the proposition of law that lottery is an actionable claim or the observations made in the judgment were only an obiter dicta and not declaration of law? HELD THAT - The definition of goods under Section 2(52) of the Act,2017 does not violate any constitutional provision nor it is in conflict with the definition of goods given under Article 366(12). Article 366 clause(12) as observed contains an inclusive definition and the definition given in Section 2(52) of Act, 2017 is not in conflict with definition given in Article 366(12). As noted above the Parliament by the Constitution(One Hundred and First Amendment) Act, 2016 inserted Article 246A. a special provision with respect to goods and services tax. The Parliament was fully empowered to make laws with respect to goods and services tax. Article 246A begins with non obstante clause. Thus, the inclusion of actionable claim in definition goods as given in Section 2(52) of Central Goods and Services Tax Act, 2017 is not contrary to the legal meaning of goods and is neither illegal nor unconstitutional - also, lottery is an actionable claim as proposition of law. Whether exclusion of lottery, betting and gambling from Item No.6 Schedule III of Central Goods and Services Tax Act, 2017 is hostile discrimination and violative of Article 14 of the Constitution of India? - HELD THAT - The Constitution Bench in State of Bombay Vs. R.M.D. Chamarbaugwala and Anr. 1957 (4) TMI 55 - SUPREME COURT has clearly stated that Constitution makers who set up an ideal welfare State have never intended to elevate betting and gambling on the level of country's trade or business or commerce. In this country, the aforesaid were never accorded recognition of trade, business or commerce and were always regulated and taxing the lottery, gambling and betting was with the objective as noted by the Constitution Bench in the case of State of Bombay Vs. R.M.D. Chamarbaugwala and Anr. 1957 (4) TMI 55 - SUPREME COURT , we, thus, do not accept the submission of the petitioner that there is any hostile discrimination in taxing the lottery, betting and gambling and not taxing other actionable claims. The rationale to tax the aforesaid is easily comprehensible as noted above. Hence, we do not find any violation of Article 14 in Item No. 6 of Schedule III of the Act, 2017. Whether while determining the face value of the lottery tickets for levy of GST, prize money is to be excluded for purposes of levy of GST? - HELD THAT - The value of taxable supply is a matter of statutory regulation and when the value is to be transaction value which is to be determined as per Section 15 it is not permissible to compute the value of taxable supply by excluding prize which has been contemplated in the statutory scheme. When prize paid by the distributor/agent is not contemplated to be excluded from the value of taxable supply, we are not persuaded to accept the submission of the petitioner that prize money should be excluded for computing the taxable value of supply the prize money should be excluded. We, thus, conclude that while determining the taxable value of supply the prize money is not to be excluded for the purpose of levy of GST - the petitioner is not entitled to reliefs as claimed in the writ petition. The petitioner has prayed for grant of liberty of challenging the notifications dated 21.02.2020/02.03.2020 by which rate of GST for lottery run by the State and lottery organized by the State have been made the same, which notification has not been challenged in the writ petition since the notifications were issued during the pendency of writ petition. Petitioner has prayed that the said issue be left open, the notification having not been challenged in the writ petition liberty be given to the petitioner to challenge the same in appropriate proceedings - petition dismissed.

Summary

Issues Involved:
1. Maintainability of the writ petition under Article 32.
2. Constitutionality of including actionable claims in the definition of goods under Section 2(52) of the Central Goods and Services Tax Act, 2017.
3. Interpretation of the Constitution Bench judgment in Sunrise Associates regarding lottery as an actionable claim.
4. Alleged hostile discrimination in taxing only lottery, betting, and gambling while excluding other actionable claims.
5. Whether prize money should be excluded from the face value of lottery tickets for the levy of GST.

Detailed Analysis:

Issue 1: Maintainability of the writ petition under Article 32
The petitioner, an authorized agent for the sale and distribution of lotteries organized by the State of Punjab, challenged the levy of GST on lotteries under the Central Goods and Services Tax Act, 2017, claiming it violates Articles 14, 19(1)(g), 301, and 304 of the Constitution. The respondent argued that the petition is not maintainable under Article 32 as lottery is "res extra commercium" and does not enjoy protection under Article 19(1)(g). The court held that the writ petition is maintainable under Article 32, as it raises issues of constitutional validity of a parliamentary enactment, specifically under Article 14.

Issue 2: Constitutionality of including actionable claims in the definition of goods
The petitioner argued that the inclusion of actionable claims in the definition of goods under Section 2(52) of the CGST Act, 2017 is unconstitutional and contrary to the legal meaning of goods, as actionable claims are excluded from the definition of goods under the Sale of Goods Act, 1930. The court referred to the Constitution Bench judgment in Sunrise Associates, which held that an actionable claim is movable property and goods in a broader sense. The court concluded that the definition of goods under Section 2(52) of the CGST Act, 2017, including actionable claims, is constitutional and not in conflict with the definition of goods under Article 366(12).

Issue 3: Interpretation of Sunrise Associates judgment
The petitioner contended that the observations in Sunrise Associates, which categorized lotteries as actionable claims, were obiter dicta and not binding. The court rejected this argument, stating that the Constitution Bench in Sunrise Associates categorically held that lotteries are actionable claims. This interpretation was considered the ratio decidendi and not obiter dicta, thus binding and applicable.

Issue 4: Hostile discrimination in taxing only lottery, betting, and gambling
The petitioner claimed that excluding other actionable claims from the tax net while taxing lottery, betting, and gambling is discriminatory and violates Article 14. The court noted that historically, activities like lottery, betting, and gambling have been regulated and taxed due to their nature. The court held that there is a rational basis for taxing these activities and not others, as they are considered pernicious and not part of trade or commerce. Therefore, the exclusion of other actionable claims from the tax net does not constitute hostile discrimination.

Issue 5: Exclusion of prize money from the face value of lottery tickets for GST levy
The petitioner argued that prize money should be excluded from the face value of lottery tickets for determining the GST levy. The court referred to Section 15 of the CGST Act, 2017, and Rule 31A of the CGST Rules, 2017, which provide the statutory framework for determining the value of taxable supply. The court concluded that the prize money is not to be excluded from the face value of the lottery tickets for GST purposes, as the statutory provisions do not contemplate such exclusion.

Conclusion:
The court dismissed the writ petition, upholding the constitutionality of the provisions under the CGST Act, 2017, and the inclusion of actionable claims in the definition of goods. The court also found no hostile discrimination in taxing only lottery, betting, and gambling while excluding other actionable claims. The petitioner's argument to exclude prize money from the face value of lottery tickets for GST levy was also rejected. However, the petitioner was granted liberty to challenge the notifications issued during the pendency of the writ petition in separate proceedings.