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TMI Blog2006 (4) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... wla, Pradeep Tara, Ms. Renu Saigal, Praveen Kumar, Ms. Prashanti Prasad, T.P. Hariprasad, Ms. Anju Bala, Mrs. Padmavathy, J.B. Ravi, M.P.S. Tomar, Mrs. Anil 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 Nos.2469, 2473, 2614, 2617, 2507, 2841, 5225-26, 5608, 11129, 11768 of 2000, W.P. No.33/2002, 127/2005 SLP 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the respondent-assessee for the execution of a 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, actionable claims, stocks and shares and securities) and includes all materials, commodities, and articles (including those to be used in the fitting out improvement or repair of moveable property); and all growing crops, grass or things attached to, or forming part of the land which are agreed to be severed before sale or under the contract of sale; 2(n) 'Sale' with all its grammatical variations and cognate expressions means every transfer of the property in goods (other than by way of a mortgage, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 successful in the draw. Both were held to be beneficial interests in moveable property, the former in praesenti , the latter in futuro depending on the contingency. To use the words of the Court:- Lottery tickets, not as physical articles, but as slips of paper or memoranda evidence not one but both these beneficial interests in moveable property which are obviously capable of being transferred, assigned or sold and on their transfer, assignment or sale both these beneficial interests are made over to the purchaser for a price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 Articles of Association of the Company's whereas the issue of lottery tickets was governed by raffle schemes and the rules framed therefor by the promoter containing provisions which were entirely different. Secondly, the context in which lottery tickets were issued was different from the context in which shares were allotted. Moreover it was said that:- the agreement that comes into existence as a result of the sale of a lottery ticket by a promoter to a buyer is in the nature of a grant conferring the two rights (the right to participate and the right to claim a prize) as distinct from the right to receive or claim a prize in such draw, needs t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 Assessing Authority would have to determine how much of the consideration was referable to the right to participate in the draw and how much to the chance of winning, and thereafter assess the dealer on the first part alone. Vikas Sales Corporation Anr v. Commissioner of Commercial Taxes and Anr. was a case where the issue before this Court was whether REP Licenses or replenishment licences were goods so that Sales tax could be levied on their transfer. The REP licences gave permission to an exporter to take credit for the exports made. Such credit could be adjusted against import duty if and when the exporter wished to import goods. The Import and Export Policy, 1993, which contained the relevant provisions relating to REP li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttery 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 reconsideration before us. The High Court construed the decision in H. Anraj and held that it was an authority for the proposition that lottery tickets themselves are goods. It was said:- A reading of the judgment (in Anraj) in its entirety leaves no manner of doubt that the lottery tickets have been held to be merchandise or trading stock of the dealer and hence goods properly so-called. Undoubtedly, one of the components of the lottery tickets is a right to enforce the holding of the draw and to claim a prize but that is a right running along with the lottery tickets. It does not detract from the holding that the lottery tickets are goods. Even at the risk of repetition we would like to stress that in H. Anraj-II their Lordships have held the lottery ticket comprising of two components in the process of analyzing its juridical concept. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermine 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. It was contended that value wise the prize money constituted 90% of the total amount collected from the purchasers whereas the value of the right to participate would be limited to the administrative expenses for holding the draw which accounted for the balance 10% of the monies collected. Several other issues have been raised on the merits of the decision of the Delhi High Court. As we have said, those other issues will have to be considered separately at the time of disposal of the appeals after we have disposed of the subject matter of this reference. The State Governments have not taken consistent stands. As far as the Government of the National Capital Territory of Delhi is concerned, it was submitted that the very arguments which had been made, considered and rejected in H. Anraj's case were sought to be reagitated again by the appellants. It was submitted that the reasoning in H. Anraj did not require reconsideration. It had held the field for several deca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only because it approved the reasoning in Anraj and not because the referring Court disagreed with the conclusion in Vikas Sales that REP licences were goods for the purposes of levy of sales tax. Indeed REP licences were not the subject matter of the appeal before the referring Court and could not have formed part of the reference. The only question we are called upon to answer is whether the decision in H. Anraj that lottery tickets are goods for the purposes of Article 366 (29A)(a) of the Constitution and the State Sales Tax Laws, was correct. The first dispute which has to be resolved is what H. Anraj in fact held. Did it hold, as was found by the Karnataka High Court in Nirmal Agency Vs. Commercial Tax Officer, that the lottery tickets were goods only because they represented the right to participate in the draw? Or did it hold, as has been found by the Delhi High Court, that the lottery tickets themselves were the goods which were sold? The conflict is a direct consequence of the somewhat ambiguous language used in H. Anraj. A: In paragraph 23 of the report, the Court did say that lottery tickets are moveable property and as such would fall within the expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 brought or sold in the market . In other words, the second conclusion which we have indicated against 'B', was the ratio. The lottery ticket was held to be merely evidence of the right to participate in the draw and therefore goods the transfer of which was a sale. To the extent that the lottery ticket evidenced the right to claim the prize, it was not goods but an actionable claim and therefore not 'goods' under the Sales Tax Laws. A transfer of it was consequently not a sale. The lottery ticket per se had no innate value. The interpretation by the Delhi High Court of the ratio in H. Anraj was in our opinion erroneous. Interestingly, some of the States, in particular the State of Tamil Nadu have expressly jettisoned the reasoning in H. Anraj and have asserted that the ticket itself is the subject matter of sale which is assessable to Sales tax. The submission is unacceptable. The word 'goods' for the purposes of imposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty in which such beneficial interest is claimed, must not be in the possession of the claimant. An actionable claim is therefore an incorporeal right. That goods for the purposes of Sales Tax may be intangible and incorporeal has been held in Tata Consultancy Services Vs. State of Andhra Pradesh (2005) 1 SCC 308. What then is the distinction between actionable claims and other goods on the sale of which sales tax may be levied? The Court in Vikas Sales (supra) said when these licenses/scrips are being bought and sold freely in the market as goods and when they have a value of their own unrelated to the goods which can be imported thereunder, it is idle to contend that they are in the nature of actionable claims . It was assumed that actionable claims are not transferable for value and that that was the difference between 'actionable claims' and those other goods which are covered by the definition of 'goods' in the Sale of Goods Act, 1930 and the Sales Tax Laws. The assumption was fallacious and the conclusion in so far as it was based on this erroneous perception, equally wrong. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icket' as a printed card or a piece of paper that gives a person a specific right, as to attend a theatre, ride on a train, claim or purchase, etc. The Madras High Court in Sesha Ayyar vs. Krishna Ayyar AIR 1936 Mad. 225 also held tickets of course are only the tokens of the chance purchased, and it is the purchase of this chance which is the essence of a lottery . The sale of a ticket does not necessarily involve the sale of goods. For example the purchase of a railway ticket gives the right to a person to travel by railway. It is nothing other than a contract of carriage. The actual ticket is merely evidence of the right to travel. A contract is not property, but only a promise supported by consideration, upon breach of which either a claim for specific performance or damages would lie (Said v. Butt 1920 3 KB 497). Like railway tickets, a ticket to see a cinema or a pawn brokers ticket are memoranda or contracts between the vendors of the ticket and the purchasers. Cases on whether the terms specified on such tickets bind the purchaser are legion. It is sufficient for our purposes to note that tickets are themselves, normally evidence of and in some cases th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be won predominantly by chance for consideration by operating multiple coin pinball machines for cash payoffs was a prize and the pinball machine constituted the lottery. This indicates that a draw is merely a method of holding the lottery just as a pinball machine may be a method of holding the lottery and does not constitute a separate right. There is no value in the mere right to participate in the draw and the purchaser does not pay for the right to participate. The consideration is paid for the chance to win. There is therefore no distinction between the two rights. The right to participate being an inseparable part of the chance to win is therefore part of an actionable claim. The authorities considered by the Court in H.Anraj do not support the sub division of the chance to win into a further distinct right to participate . The Court sought to draw the distinction between the chance to win and the right to participate by describing the former as a right 'in futuro' and the latter as in praesenti . Both the rights are in fact 'in futuro'. In any event the distinction is immaterial to the question as to whether the subject matter of the transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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