IMPORTANT POINT
Sales tax cannot be levied by States on the sale of lottery tickets as there is no sale of goods involved within the meaning of Sales Tax Acts of the different States but at the highest a transfer of an actionable claim.

Headnote:(i) Constitution of India — Article 366(29-A)(d) — Sales Tax Acts — Transfer of Property Act, 1882 — Sections 3 and 130 — Sale of lottery ticket — Whether sales tax can be levied by the States — (No) — There is no sale of goods within the meaning of Sales Tax Acts of different States but a transfer of actionable claim — In H. Anraj v. Govt. of T.N., (1986) 1 SCC 414 held that a lottery involved (i) the right to participate in the lottery draw, and (ii) the right to win the prize, depending on chance — Court in that case held that while second right was a chose in action, therefore not ‘goods’, the first was a sale within the meaning of Article 366 (29-A) (d) of the Constitution and consequently subject to sales tax — High Court of Delhi in Haryana State Lotteries v. Govt. of NCT, 1998(46) DRJ 397 held that lottery tickets were goods, liable to sales tax under Delhi Sales Tax Act — Order of reference was made on prima facie view that there was no reason to split a lottery into two separate rights — Whether decision in H. Anraj was justified in holding that a sale of a lottery ticket involved a sale of goods — (No) — H. Anraj, overruled.
       Held : All the statutory definitions of the word 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.(Para 37)
       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 property itself, and may be existent, accruing, conditional or contingent. The movable property 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.(Para 38)
       The Transfer of Property Act 1882, deals with transfer of actionable claims in Chapter VIII of that Act. Section 130 of the Transfer of Property Act provides that an actionable claim may be assigned for value. A right on the fulfillment of certain conditions to call for delivery of goods mentioned in a contract is an actionable claim and assignable under Section 130.(Para 41)
       A lottery ticket has no value in itself. It is a mere piece of paper. Its value lies in the fact that it represents a chance or a right to a conditional benefit of winning a prize of a greater value than the consideration paid for the transfer of that chance. It is nothing more than a token or evidence of this right. The Court in H. Anraj, as we have seen, held that a lottery ticket is a slip of paper or memoranda evidencing the transfer of certain rights. We agree.(Para 43)
       It is sufficient for our purposes to note that tickets are themselves, normally evidence of and in some cases the contract between the buyer of the ticket and its seller. Therefore a lottery ticket can be held to be goods if at all only because it evidences the transfer of a right. The question is, what is this right which the ticket represents? There can be no doubt that on purchasing a lottery ticket, the purchaser would have a claim to a conditional interest in the prize money which is not in the purchasers possession. The right would fall squarely within the definition of an actionable claim and would therefore be excluded from the definition of 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.(Paras 45 and 46)
       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 right, it is the latter which defines the right. The right to participate in the draw is a part of the composite right of the chance to win and it does not feature separately in the definition of the word "lottery". It is an implicit part of the chance to win. It is not a different right. The separation is specious since neither of the rights can stand without the other. A draw without a chance to win is meaningless and one cannot claim a prize without participating in the draw. In fact the transfer of the chance to win assumes participation in the draw.(Para 47)
       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.(Para 48)
       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 transfer is an actionable claim, since an actionable claim may be existent, accruing, conditional or contingent. (Para 49)
       Even if the right to participate is assumed to be a separate right, there is no sale of goods within the meaning of sales tax statutes when that right is transferred. When H. Anraj said that the right to participate was a beneficial interest in moveable property, it did not define what 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.(Para 50)
       We are therefore of the view that the decision in H. Anraj incorrectly held that a sale of a lottery ticket involved a sale of goods. There was no sale of goods within the meaning of Sales Tax Acts of the different States but at the highest a transfer of an actionable claim. The decision to the extent that it held otherwise is accordingly overruled though prospectively with effect from the date of this judgment.(Para 54)
       We accordingly answer the question referred to us as indicated above. Let the matters be placed before an appropriate Bench for disposal of the several appeals on merits in the light of this judgment. (Para 55)
       (ii) WORDS AND PHRASES — Word ‘ticket’ — Dictionary Meaning.
       Held : Websters Words and Phrases Permanent Edition, Vol. 25-A Supplement defines a ticket 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". (Para 44)
       (iii) WORDS AND PHRASES — Word ‘goods’ — Meaning for imposition of sales tax — The word has been uniformly defined in various sales tax laws as meaning all kinds of movable property. (Para 36)
       (iv) WORDS AND PHRASES — Word ‘property’ — Meaning.
       Held : The word goods for the purposes of imposition of sales tax has been uniformly defined in the various sales tax laws as meaning all kinds of moveable property. The word "property" may denote the nature of the interest in goods and when used in this sense means title or ownership in a thing. The word may also be used to describe the thing itself. The two concepts are distinct, a distinction which must be kept in mind when considering the use of the word in connection with the sale of goods. In the Dictionary of Commercial law by A.H. Hudson (1983 Edn.) the difference is clearly brought out. The definition reads thus: " Property – In commercial law this may carry its ordinary meaning of the subject-matter of ownership. But elsewhere, as in the sale of goods it may be used as a synonym for ownership and lesser rights in goods". Hence, when used in the definition of goods in the different sales tax statutes, the word property means the subject matter of ownership. The same word in the context of a sale means the transfer of the ownership in goods. (Para 36)

JUDGMENT

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.

2. The question in H. Anraj was whether sales tax can be levied by States on the sale of lottery tickets. A bench of two-Judges held that a lottery involved (i) the right to participate in the lottery draw, and (ii) the right to win the prize, depending on chance. The learned Judges were of the opinion that while the second right was a chose in action and therefore not goods for the purposes of the levy of Sales Tax, the first was a transfer of a beneficial interest in moveable goods and was a sale within the meaning of Article 366 (29-A)(d) of the Constitution and consequently subject to sales tax.

3. The immediate cause for the present reference was a decision of the High Court of Delhi dated 17th July, 1998 in Haryana State Lotteries v. Govt. of NCT 1998 (46) DRJ 397 disposing of a series of writ petitions which construed H. Anraj and held that lottery tickets were goods and are liable to sales tax under the Delhi Sales Tax Act, 1975. Several of the writ petitioners before the Delhi High Court have challenged the decision of the Delhi High Court before this Court. In the appeal preferred by Sunrise Associates, the order of reference was made on the prima facie view that there was no good reason to split a lottery into two separate rights and, therefore, the judgment in H. Anraj required reconsideration. Since in the case of Vikas Sales Corporation v. Commissioner of Commercial Taxes (supra), a bench of three-Judges had agreed with the decision of H. Anraj, it was necessary that the appeal should be heard by a Constitution Bench.

4. The relevant provisions of law which formed the background in the context of which the decision of H. Anraj was given are considered by us prior to assessing the correctness of the decision. Entry 54 of List II of the Seventh Schedule read with Article 246(3) of the Constitution gives the States power to make laws with respect to "taxes on the sale or purchase of goods other than newspapers subject to the provisions of Entry 92(A) of List I". The meaning of the expression "sale of goods" was considered by a Constitution Bench in the The State of Madras v. Gannon Dunkerley & Co. Ltd. 1958 SCR 379. The question arose in connection with assessment of sales tax under the Madras General Sales Tax Act, 1939 for the year 1949-50 on the value of materials used 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".

5. 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 that there was no sale. Therefore, a contract under which a cont

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2006 Supreme(SC) 416

IMPORTANT POINTSales tax cannot be levied by States on the sale of lottery tickets as there is no sale of goods involved within the meaning of Sales Tax Acts of the different States but at the highest a transfer of an actionable claim.

Cases Referred (7)

IMPORTANT POINT
Sales tax cannot be levied by States on the sale of lottery tickets as there is no sale of goods involved within the meaning of Sales Tax Acts of the different States but at the highest a transfer of an actionable claim.