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TMI Blog1985 (10) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------- TULZAPURKAR, J.-These writ petitions and the civil appeal raise a common question of law, namely, whether sales tax can be levied by a State Legislature on the sale of lottery tickets in the concerned State. The facts giving rise to the aforesaid question lie in a narrow compass and in the writ petitions the question arises out of the levy imposed for the first time on such sales of lottery tickets by an amendment made in the Tamil Nadu General Sales Tax Act, 1959, with effect from January 28, 1984, while in the civil appeal it arises out of a similar levy imposed for the first time by making suitable amendments in the Bengal Finance (Sales Tax) Act, 1941, with effect from May 1, 1984. Indisputably the subject of "lotteries" organised either by the Government of India or by the Government of a State falls within the Union List (entry 40 of List I) but, in the absence of any law having been enacted by the Parliament on the subject, the running of lotteries could be done by the Government of various States only under article 258(1) of the Constitution on entrustment of that function by the Union to the concerned State. Accordingly at the instance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted to the purchaser. Shri H. Anraj, the common petitioner in both the writ petitions, who has been carrying on business in the State of Tamil Nadu as a dealer in lottery tickets issued by the Royal Government of Bhutan, the State of Assam and various other lotteries, has challenged the validity of both the levy of sales tax on the sale of lottery tickets as also the exemption granted under Notification G.O. Ms. No. 219 dated March 31, 1984. Presumably on the entrustment of the function of conducting a State lottery by the Union Government under a similar Presidential Order the Government of West Bengal organised its own lottery by sponsoring a raffle scheme and framing appropriate Rules in that behalf and for the purpose of levying sales tax on the sale of the lottery tickets the State Legislature promulgated the West Bengal Taxation Laws (Second Amendment) Act, 1984, whereunder by making appropriate amendments (by way of additions) to sections 5(1)(aa), 5(1)(dd), 5(2)(a)(vb) and 5(2)(b)(iva) of the Bengal Finance (Sales Tax) Act, 1941, sales tax at the rate of 20 per cent was levied on the taxable turnover of every dealer in regard to the sale of lottery tickets. By Notificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted to act in the exercise of its own taxing power under entry 54 of List II. But, according to counsel, entry 54 of List II enables legislation imposing a tax, inter alia, on "sale of goods"; that it is well-settled that the expression "sale of goods" has to be construed in the sense which it has in the Indian Sale of Goods Act, 1930: vide Gannon Dunkerley's case [1958] 9 STC 353 at 380 (SC); [1959] SCR 379 at 416, that "goods " under section 2(7) thereof comprises within its scope every kind of movable property but specifically excludes actionable claim, that the essence of lottery is a chance for a price, that a sale of such a chance is not a sale of goods and therefore the levy of sales tax on sale of lottery tickets would be beyond the ambit of entry 54 of List II. Alternatively, counsel contended that a lottery ticket is an actionable claim as defined in section 3 of the Transfer of Property Act or a chose-in-action known to English law, the ticket itself being merely a slip of paper or memorandum evidencing the right of the holder thereof to claim or receive a prize if successful in the draw and therefore the impugned levy is outside entry 64 of List II. So far as the Madra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incorporeal in character) in possession of the holder of the ticket and hence "goods" capable of being possessed and bought or sold. As regards the exemption granted by the Tamil Nadu Government under Notification G.O.Ms. No. 219 dated March 31, 1984, it was contended that the circumstances that the Tamil Nadu Government decided not to pass on the sales tax to the purchaser cannot invalidate the same as falling under article 14 or article 304 inasmuch as it is open to a dealer not to pass on the burden to the purchaser and bear it himself and further it is also open to all other State Governments who run lotteries to elect not to pass on the sales tax to the purchaser of their lottery tickets. As regards entry 62 of List II on which the reliance was placed by the learned Attorney-General, counsel for the dealers have rejoined by saying that reliance on that entry for finding the legislative competence will be of no avail for two reasons. First, if the tax was to be levied on betting and gambling the charging event ought to have been the organising of the lottery and the levy should have been imposed on the two State Governments for having organised that activity by undertaking the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble property other than actionable claims, stocks, shares or securities;" "2. (g) 'sale' means any transfer of property in goods for cash or deferred payment or other valuable consideration........" The term "goods" is defined in section 2(7) of the Sale of Goods Act, 1930, and so far as is material it means "every kind of movable property other than actionable claims and money;" and this definition read with section 4 of that Act clearly shows that the concept of "sale of goods" thereunder means "a transfer of property in the goods for a price". Article 366(12) of the Constitution gives an inclusive definition of "goods" which says- "'Goods' includes all materials, commodities and articles;" and article 366(29A) inserted by the Forty-sixth Constitutional Amendment Act, gives an extended meaning to the concept of "sale or purchase of goods" while defining the expression "tax on the sale or purchase of goods" but we are not concerned with the extended meaning in this case and only clause (a) thereof is material which runs thus: "(29A) 'tax on the sale or purchase of goods' includes- (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... various forms of gambling." (Very passage has been annotated in "Words and Phrases", Permanent Edition, Vol. 25, at page 446.) In Corpus Juris Secundum, Vol. 54, at page 845, the three essential elements of a lottery are stated thus: "There are three elements essential to the existence of a lottery, namely, chance, consideration and prize; if these three elements are present the scheme is a lottery, otherwise it is not......If an essential element is absent the scheme is not a lottery, regardless of the motive for the omission, and, conversely if all the elements are present, the scheme is a lottery, regardless of the fact that the purpose of its sponsor is to increase his business." In Volume 38, American jurisprudence 2d, at page 113, the further statement of law in para 6 is: "In order to comprise a lottery, these three elements or ingredients (mentioned above) must be present; chance alone will not to do so, nor will chance even when coupled with consideration. Nor is the combination of consideration and prize sufficient alone." Reliance was also placed on three English decisions, namely, Bartlett v. Parker [1912] 2 KB 497, Hall v. McWilliam 85 LTR 239 and Kerslake v. Kni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed merely as a slip of paper or memorandum evidencing the right of a holder thereof to share in the pool or the distributable fund; it is merely a convenient mode for ascertaining the identity of the winner and the fact of payment and, therefore, such a ticket, though a physical article, cannot be regarded as goods. Having thus brought out the concept of a lottery as also of a lottery ticket counsel for the dealers have vehemently contended that a sale of a lottery ticket is nothing more than a sale of a chance to win a prize and no transaction of sale of movable property takes place or is involved in the sale of a lottery ticket, the ticket itself being merely a token of the chance purchased and therefore the levy of a tax on the sale of such chance must fall outside entry 54 of List II and therefore the impugned amendments made in both the Acts would lack legislative competence. In any event counsel urged that a lottery ticket constitutes an inchoate right to receive the prize money and therefore can at best be described as a contingent interest in money and it is well-settled that the expression "goods" does not include money. Without prejudice to the aforesaid contention coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew that when a person buys a lottery ticket from the conductor of the lottery there is an assignment of a "chose in action". In view of the above counsel urged that a sale of a lottery ticket is no more than an assignment of an actionable claim and no transfer of any property in goods is involved and as such the impugned amendments suffer from lack of legislative competence. At the outset I would like to point out that the entire material on which reliance has been placed by counsel for the dealers to bring out the real meaning and concept of "lottery" and "lottery ticket" for the purpose of supporting their main contention, though valuable as far as it goes, is strictly irrelevant and of no assistance to decide the real issue arising in the case. It cannot be disputed that the true meaning of "lottery" as given in all the dictionaries as also the three essential elements requisite for a lottery as enunciated in the American decision, the three English decisions and the Full Bench decision of the Madras High Court show that in essence a lottery means a chance for a prize for a price and that unless all the three essential elements are present the scheme or the transaction would n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as immovable property but would, therefore, be movable property and as such these will fall within the expression "goods". Of course, questions whether these tickets constitute "goods" property so-called or are slips of paper or memoranda merely evidencing the right to claim a prize by chance, and whether these are actionable claims and hence excluded from the concept of goods, will be considered presently. But it cannot be disputed that as opposed to immovable property these tickets would be movable property and would normally qualify to fall within the expression "goods". Since "goods" are defined to exclude actionable claims it will be useful at this stage to refer to the definition of "actionable claim" as given in section 3 of the Transfer of Property Act, which runs thus: " 'Actionable claim' means a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the civil courts recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 'grants'. A contract is an agreement which creates an obligation or a right in personam between the parties to it. A grant is an agreement which creates a right of any other description; examples being grants of leases, easements, charges, patents, franchises, licences, and so forth. An agreement which transfers a right may be termed generically an assignment. One which extinguishes a right is a release, discharge, or surrender ............ It often happens that an agreement is of a mixed nature, and so falls within two or more of these classes at the same time. Thus the sale of a specific chattel is both a contract and an assignment for it transfers the ownership of a chattel and at the same time creates an obligation to pay the price." The delivery of a lottery ticket issued under the Rules governing the raffle schemes in the instant case to a purchaser thereof is obviously not a mere contract creating an obligation or right in personam between parties to it but as explained hereafter would be in the nature of a grant. Dealing with agreements which are in the nature of grants, it is well-settled that rights and benefits arising thereunder, unless of a personal nature, par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to some emoluments or benefits then such emoluments or benefits under the contract would constitute property. It cannot be disputed that in every raffle scheme based on the sale of lottery tickets, similar to the schemes sponsored by each of the two States in this case, every participant is required to purchase a lottery ticket by paying a price therefor (the face value of the ticket) and such purchase entitles him not merely to receive or claim a prize in the draw, if successful but before that also to participate in such draw. In other words, a sale of a lottery ticket confers on the purchaser thereof two rights (a) a right to participate in the draw and (b) a right to claim a prize contingent upon his being successful in the draw. Both would be beneficial interests in movable property, the former its praesenti, the latter in futuro depending on a contingency. Lottery tickets, not as physical articles, but as slips of paper or memoranda evidence not one but both these beneficial interests in movable 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plan in which a prize is set up and awarded by chance, for the right to participate in which a consideration is paid." (Grimes v. State 178 So 69, 71, 72; 28 Ala App 4) (at page 467). "A lottery is a scheme for the distribution of property by chance or lot among persons who have paid or agreed to pay a valuable consideration for the privilege of participating in such scheme." (New Orleans v. Collins 27 So 532, 536; 52 La Ann 973) (at page 468). "Three things must concur to establish a thing as a 'lottery': A prize or prizes; the award or distribution of the prize or prizes by chance; and the payment either directly or indirectly by the participants of a consideration for the right or privilege of participating." (Robb & Rowely United v. State Tex Civ App 127 SW 2d 221, 222) (at page 470). The aforesaid passages which are based on decided cases clearly bring out the position that not one but two distinct rights are transferred to the purchaser of a lottery ticket and it is not possible to accept the contention that the two together constitute a single right. Counsel for the dealers sought to raise a further contention that the issue of a lottery ticket, like the issue of shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hell, the difference between the issue of a share to a subscriber and the purchase of a share from an existing shareholder is the difference between the creation and the transfer of a chose in action ..........'" The contention so put forward is in my view without any substance. In the first place the capital issue by a joint stock company is governed by the provisions of the Companies Act and memorandum and articles of association of the company (whereunder no company can subscribe to or purchase its own shares since it amounts to reduction of capital) whereas the issue of lottery tickets would be governed by a raffle scheme and the Rules framed therefor by the promoter (who in the instant case happens to be a State Government) containing provisions entirely different from those governing issue of share capital and as such the analogy of capital issue by a joint stock company is wholly inappropriate. Secondly, the learned authors were dealing with the case of amalgamation of two companies in the context of "capital gains tax", while the learned Law Lord, as the Report of the case shows, was concerned with construing the meaning of the word "purchase" occurring in section 45 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect sales thereof till the draw actually takes place and as such till then the lottery tickets constitute their stock-in-trade and therefore a merchandise. In other words, lottery tickets, not as physical articles but as slips of paper or memoranda evidencing the right to participate in the draw must in a sense be regarded as the dealer's merchandise and, therefore, goods, capable of being bought or sold in the market. They can also change from hand to hand as goods. Even in United States v. Mueller 178 (2nd series) Federal Reports 593, on which counsel for dealers relied, the court, while emphasising the aspect that lottery tickets are more in the nature of choses in action (because of the right to claim a prize by chance), has observed that these are merchandise though in a limited sense. The aforesaid aspect of the matter really clinches in my view the position that for the purpose of imposing the levy of sales tax lottery tickets comprising the entitlement to a right to participate in a draw will have to be regarded as "goods" properly so-called. It is true that this entitlement to a right to participate in the draw is an entitlement to beneficial interest which is of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement conferred upon another party the right to have his film exhibited for a certain period as a distributor together with ancillary right of making or causing to be made positive prints for the purposes of exhibition and the question arose whether the transaction was one of lease or sale of that right and on construction of the agreement in question and having regard to all the facts and circumstances the court came to the conclusion that it was a lease and not a sale and therefore not exigible to sales tax, though the right of exhibiting the film which was the subject-matter of the agreement was regarded as falling within the definition of "goods" under section 2(j) of the Madras General Sales Tax Act, 1959. After referring to the concept of copyright both under the English as well as Indian law the court observed thus: "Copyright is referred to (in Salmond's Jurisprudence, 11th edition, page 462) as an immaterial form of property recognised by law, being the product of human skill and labour or of a man's brains. In all the English text books, which it is unnecessary to refer at length, copyright has been regarded as incorporeal movable property and that view has been adopt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s became taxable at the point of first sale in that State and it appears that under the raffle scheme promulgated by the State Government the first sale of lottery tickets issued thereunder was by the State Government to various licensed agents, wholesalers, stockists, etc., and the State Government became liable to pay sales tax as the first dealer. Such levy had the effect of increasing the face value of the ticket to the extent of sales tax, surcharge or additional surcharge payable on the sales. This position was reviewed by the Government with a view to reduce the burden of tax on Tamil Nadu raffles, which was being passed on to the buyers in addition to the face value. With that object in view the Finance (Raffle) Department of the State Government issued the aforesaid notification bringing into force certain arrangement whereby while retaining the sale price of the ticket at its face value the tax was not to be passed on to the licensed dealer or to the purchaser. The notification runs thus: "FINANCE (RAFFLE) DEPARTMENT G.O. Ms. No. 219 Dated: 31.3.1984 Panguni 18, Ruthrodhkari, Thiruvalluvar Aandu 2015 READ G.O. P. No. 77 dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... face value of Re. 1 will be available to the purchaser at Re. 1 but a lottery ticket of any other Government of the face value of Re. 1 will have to be purchased by the purchaser at Re. 1.20. Since such a result is directly brought about by the impugned notification the writ petitioners have challenged its constitutional validity mainly under article 301 read with article 304(a) of the Constitution. The argument in support of the challenge to the impugned notification under article 301 read with article 304(a), briefly stated, runs thus. According to the counsel if lottery tickets are regarded as goods-and we have now held that they are goods-the sale of goods imported into the State of Tamil Nadu will be subjected to the sales tax whereas the sale of Tamil Nadu Government lottery tickets will not be subject to tax and thus there is a clear discrimination against the imported goods and, therefore, the amendment made in the Tamil Nadu Act read with the impugned exemption notification which permits such discrimination would be violative of article 301 read with article 304(a) of the Constitution. Counsel pointed out that article 301 guarantees freedom of trade, commerce and inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C); [1963] Supp 2 SCR 435. In this case the petitioner-firm was a dealer in hides and skins; it used to sell hides and skins tanned outside the State of Madras as well as those tanned inside the State. Under rule 16 of the Madras General Sales Tax Rules tanned hides and skins imported from outside and sold inside the State were subjected to higher rates of tax than the tax imposed on hides and skins tanned and sold within the State and the petitioner-firm challenged the sales tax assessment made in relation to the turnover of sales of tanned hides and skins which had been obtained from outside the State of Madras on the ground that there was discriminatory taxation which offended article 304(a) of the Constitution. The respondents contended; (a) that sales tax did not come within the purview of article 304(a) as it was not a tax on the import of goods at the point of entry, (b) that the impugned rule was not a law made by the State Legislature, (c) that the impugned rule by itself did not impose the tax but fixed the single point at which the tax was imposed by sections 3 and 5 of the Act, and (d) that the impugned rule was not made with an eye on the place of origins o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ods (Tamil Nadu Government lottery tickets) when these are sold within the State from the point of view of the purchaser and this question has to be considered from the normal business or commercial point of view and indisputably if the question is so considered the impugned notification will have to be regarded as directly and immediately hampering free flow of trade, commerce and intercourse. Discriminatory treatment in the matter of levying the sales tax on imported lottery tickets which are similar to the ones issued by the State Government so as to hamper free flow of trade, commerce and intercourse is writ large on the face of the impugned notification and in my view the same is clearly violative of article 301 read with article 304(a) of the Constitution. In the result I uphold the validity of the impugned amendments made in the two enactments, namely, the Tamil Nadu General Sales Tax Act, 1959, and the Bengal Finance (Sales Tax) Act, 1941, but I strike down the impugned Notification G.O. Ms. No. 219 dated March 31, 1984, issued by the State Govern- ment of Tamil Nadu. The writ petitions are partly allowed while the civil appeal is dismissed. In the circumstances I direct t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w and Practice of Income Tax is not relevant and the analogy of capital issue by joint stock company is not appropriate. Under the Rules, the promoter is not able to participate in the draw or claim a prize in such a draw. Therefore the right that is transferred to the purchaser of lottery ticket is not the same right which was existing in the grantor, in this case the promoter. By the sale by the promoter and purchase by the grantee of the ticket, there is no transfer of the same property, namely, the property which existed in the grantor, namely, disability from participating in the draw which is granted to the purchaser or the grantee of the lottery ticket. The transfer of right from the promoter-grantor to the buyer-grantee is involved in the sale of a lottery ticket but is it the transfer of the same right which the promoter or grantor had or a larger or greater right created by the factum of transfer in favour of the grantee? This is a point of some complexity and there is no easy solution. I have, however, persuaded myself to agree with the order proposed by my learned brother because the promoter of lottery in the cases involved before us is the State and the grant is in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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