TMI Blog1985 (10) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... merchandise and therefore goods which are capable of being bought or sold in the market. With these observations, I respectfully agree with the conclusion reached by my learned brother and concur with the order proposed by him. - Civil Appeal No. 4099 of 1984, W.P. No. 435, 436 of 1985, - - - Dated:- 4-10-1985 - TULZAPURKAR V.D. AND SABYASACHI MUKHARJI JJ. N. Gooptu, Senior Advocate (H.K. Puri, Advocate, with him), for the respondents in C.A. No. 4099 of 1984. K. Parasaran, Attorney-General (A.V. Rangam, Advocates, with him), for the respondent in W.P. Nos. 435 and 436 of 1985. Dr. Y. S. Chitale, Senior Advocate (Vineet Kumar and K. Srinivasan, Advocates with him), for the petitioner in W.P. No. 436 of 1985. Soli J. Sorabjee, Senior Advocate (K. Srinivasan, N. B. B. Raju and Vineet Kumar, Advocates, with him), for the petitioner in W.P. No. 435 of 1985. K.K.Venugopal, Senior Advocate (Vimal Dave, Miss Kailash Mehta and Mrs. Neelam Kalsi, Advocates, with him), for the appellants in C.A. No. 4099 of 1984. -------------------------------------------------- TULZAPURKAR, J. -These writ petitions and the civil appeal raise a common question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tickets were brought within the purview of the charge and tax at the rate of 20 per cent was levied on the sale of such tickets "at the point of first sale in the State". This notification was later followed by a regular legislative amendment made in the Act as required by section 59(2). Presumably this was done in the exercise of its own independent taxing power under entry 54 of List II in the Seventh Schedule to the Constitution. It seems that under the raffle scheme so promulgated the first sale of lottery tickets issued thereunder was by the State Government of Tamil Nadu to various licensed agents, wholesalers, stockists, etc., and the State Government became liable to pay sales tax as the first dealer. Therefore, the Finance (Raffle) Department of the State Government issued a Notification G.O.Ms. No. 219 on March 31, 1984, bringing into force certain arrangement whereunder while retaining the sale price of the ticket at its face value the tax was not passed on to the licensed dealer or to purchaser; in other words effectively exemption from payment of sales tax was granted to the purchaser. Shri H. Anraj, the common petitioner in both the writ petitions, who has been carryi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclusion that lottery tickets were not actionable claims but "goods" within the definition of that expression given in the Bengal Finance (Sales Tax) Act, 1941, and, therefore, the State Legislature was competent under entry 54 of List II to enact the concerned amendments levying sales tax on the sale of lottery tickets. Hence the appeal. Counsel for the dealers have challenged the levy of sales tax on the sale of lottery tickets imposed under both the enactments, the Tamil Nadu General Sales Tax Act, 1959, as amended, and the Bengal Finance (Sales Tax) Act, 1941, as amended, principally on the ground of lack of legislative competence on the part of the concerned State Legislatures. Counsel pointed out that under the charging provision contained in both the Acts (section 3 of the Tamil Nadu Act, 1959, and section 4 of the Bengal Act, 1941) the taxable event is the sale of goods (here lottery tickets) and the levy is imposed upon the taxable turnover of every dealer in regard to the sales of lottery tickets and, therefore, quite clearly, each of the State Legislatures has purported to act in the exercise of its own taxing power under entry 54 of List II. But, according to counsel, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce that is sold, then the tax in the present case would be a tax on betting and gambling and the same has to be levied in the case of lottery tickets at the time of the sale of the tickets because it is at that time that betting takes place and as such the impugned amendments would fall under entry 62 of List II. Of course, the learned Attorney-General and counsel for the State of West Bengal justified the impugned amendments under entry 54 of List II by contending that a lottery ticket was "goods" within the definitions of that expression given in the two Acts as also in the Sale of Goods Act, 1930, and not purely an actionable claim as contended for by counsel for the dealers and hence the levy on its sale was perfectly competent under that entry, and in this behalf the contention in substance was that a sale of a lottery ticket confers on the purchaser two rights (a) a right to participate in the draw, and (b) a right to claim a prize if successful in the draw and though the latter may be an actionable claim the former constitutes beneficial interest in the movable property (incorporeal in character) in possession of the holder of the ticket and hence "goods" capable of being p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... islation levying tax on "sale of goods" it is necessary to appreciate the real concept of the expressions "goods", "sale", "lottery" and "lottery ticket". Section 2(j) and 2(n) of the Tamil Nadu Act defines "goods" and "sale" 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; 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, hypothecation, charge or pledge) by one person to another in the course of business for cash, deferred payment or other valuable consideration;" (other clauses give extended meanings which are not material). Similarly the expressions "goods" and "sale" are defined in section 2(d) and (g) respectively of the Bengal Act thus: "2. (d) 'goods' includes all kinds of movable property other than actionable claims, stocks, shares or securities;" "2. (g) 'sale' means a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's Law Dictionary (5th Edition, page 853) it is defined thus: "A chance for prize for a price. Essential elements of lottery are consideration, prize and chance and any scheme or device by which a person for consideration is permitted to receive a prize or nothing as may be determined predominantly by chance." (Based on State v. Wassick, W.Va. 191 SE 2nd 283, 288.) In Edward H. Horner v. United States 37 Law Ed 237 at 241 the Supreme Court of the United States quoted with approval the following definition of "lottery" contained in the Century Dictionary: "A scheme for raising money by selling chances to share in a distribution of prizes; more specifically, a scheme for distribution of prizes by chance among persons purchasing tickets, the correspondingly numbered slips or lots, representing prizes or blanks, being drawn from a wheel on a day previously announced in connection with the scheme of the intended prizes. In law the term 'lottery' embraces all schemes of distribution of prizes by chance, such as policy-playing, gift exhibitions, prize concerts, raffles at fairs, etc., and includes various forms of gambling." (Very passage has been annotated in "Words and Phrases", Per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e dictionary meaning of the word "ticket" is "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 of purchase, etc." (see Webster) and lottery ticket has been defined in "Words and Phrases", Permanent Edition, Vol. 25A, Supplement, at page 73 thus: "Lottery ticket is token of the right to participate in pool.": Finster v. Keller 96 Cal Reptr 241, 249; 18 CA 3d 836. Further counsel pointed out how the term "ticket" in the context of lottery has been explained in the same volume 25A at page 491, namely: "The term 'ticket', when speaking of the sale of lottery tickets is equivalent to chances.": Saloman v. State 27 Ala 26-30. Counsel also strongly relied upon Justice Cornish's observation in the Full Bench decision of the Madras High Court in Sesha Ayyar v. Krishna Ayyar AIR 1936 Mad 225 (FB) to the effect: "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." Relying upon the aforesaid material counsel contended that a lottery ticket will have to be regarded merely as a slip of paper or memorandum evidencing the right of a holder th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reliance was also placed upon the decision in United States v. Mueller 178 (2nd series) Federal Reports 593 at 594, where the following passage occurs: "Conceding, without deciding, that lottery tickets are merchandise, they are such only in a limited sense. In a general sense they are more in the nature of 'choses in action' being in some respects memoranda of conditional promises to pay." (Also annotated in "Words and Phrases", Permanent Edition, Vol. 25A, at page 491). Similarly, counsel relied upon an English decision in Jones v. Carter 8 QB 134; 115 ER 825-826, where Lord Denman, C.J., took the view that the assignment of a ticket in a Derby Sweepstake was an assignment of a chose in action [a decision annotated in Halsbury's Laws of England, Fourth Edition, Volume 6, para 8(2), and in Stroud's judicial Dictionary, Fourth Edition, volume 1, at page 460 under the heading "chose in action"]. It was submitted that a lottery ticket possesses the same character and would, therefore, be a "chose in action". Similarly, it was pointed out that in King v. Connare 61 CLR 596 at 607 Latham, C. J., also took the view that when a person buys a lottery ticket from the conductor of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y kind of movable property other than actionable claims and money". Clearly, the expression "movable property" is used in contradistinction with "immovable property". Section 3 of the Transfer of Property Act gives a negative definition of "immovable property" saying that it does not include standing timber, growing crops or gross and is, therefore, not of much assistance; but section 3(26) of the General Clauses Act, 1897, defines "immovable property" by stating that it "shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to earth", while "movable property" is defined in section 3(33) thus: " 'movable property' shall mean property of every description, except immovable property." It is thus clear that when section 2(7) of the Sale of Goods Act defines "goods" as meaning "every kind of movable property other than actionable claims and money", the expression "movable property" occurring therein must mean property of every description except immovable property. Now, it is obvious that lottery tickets can by no stretch of imagination be regarded as immovable property but would, therefore, be movable property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esults merely in bringing into existence a contract and does not result in the transfer of any rights from the promoter or the dealer to the purchaser, much less of rights to property. It is not possible to accept this contention; whether by reason of a sale of a lottery ticket merely a contractual document come into existence or along with the delivery of such a ticket to the purchaser on payment of price by him some rights are transferred to the purchaser must depend upon the intention of the parties, the mode of issuing such ticket and the Rules governing the raffle scheme. Even proceeding on the assumption that lottery tickets are contractual documents that fact cannot militate against the tickets being goods and certain rights thereunder being transferred to the purchaser. In Salmond's Jurisprudence, 12th Edition, at pages 338-339, under the heading "The Classes of Agreements", the following passage occurs: "Agreements are divisible into three classes, for, they either create rights, or transfer them or extinguish them. Those which create rights are themselves divisible into two sub-classes, distinguishable as 'contracts' and 'grants'. A contract is an agreement which crea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be a right in property and, therefore, the fact that such a right stemmed from a statute could not obviously expand its content or make it any the less a non-proprietory right; the court held that a statutory right to apply for the purchase of the land was not a right of property. In the latter case the court took the view that a right to go to a forest area and collect tendu leaves under a contract given to the petitioner conferred no right to property before the leaves were plucked and therefore the Adhiniyam in question had invaded no property rights. In my view both the decisions dealt with rights under a statute or contract which created merely obligations or rights in personam and not with agreement in the nature of a grant. In the case of the latter type of agreements the rights or benefits arising thereunder would be property more so when a party thereto has become entitled to the same on performing his part of the contract and in fact such rights or benefits would also be assignable. Counsel for the dealers fairly conceded the position that where under a contract, a party on the performance of his part of the contract is entitled to some emoluments or benefits then suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s thus clear that a transfer of the right to participate in the draw which takes place on the sale of a lottery ticket would be a transfer of beneficial interest in movable property to the purchaser and, therefore, amounts to transfer of goods and to that extent it is no transfer of an actionable claim; to the extent that it involves a transfer of the right to claim a prize depending on a chance it will be an assignment of an actionable claim. That when a purchaser purchases a lottery ticket he pays consideration (price) not merely for the right to claim in future a prize in the draw but also for the right in praesenti to participate in the draw will be clear from certain passages based on decided cases annotated in Words and Phrases, Permanent Edition, Vol. 25A, which we would like to extract: "'Lottery', in accordance with public usage, is a scheme or plan for distribu- tion of prizes by chance among those paying or agreeing to pay consideration for right of participation." (City of Wink v. Griffith Amusement Co. 100 SW 2d 695, 698, 699, 700, 701; 129 Tex 40) (at page 460). "A 'lottery' or scheme in the nature of a lottery is a plan in which a prize is set up and awarded by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inees of company A, a question arises as to whether those shareholders are liable to tax under the head 'capital gains'. No such tax would be payable unless the amalgamation involves (a) a transfer or (b) a sale, or (c) an exchange, or (d) a relinquishment of the asset, or (e) the extinguishment of any rights therein [section 2(47)]. It is clear that such amalgamation does not involve any transfer or sale of the shares... There is no transfer of any assets by the shareholders of company A to company B; the transfer of assets by company A cannot be regarded as a transfer by its shareholders. Nor is there any transfer by company B when it allots its share capital to the shareholders of company A. The allotment of shares by a company cannot be regarded as a transfer of property by that company. As Lord Greene, M.R., observed in In re V.G.M. Holdings Ltd. [1942] 1 All ER 224, 226 (CA): 'A share is a chose in action. A chose in action implies the existence of some person entitled to the rights, which are rights in action as distinct from rights in possession, and, until the share is issued, no such person exists. Putting it in a nutshell, the difference between the issue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual sale of the tickets to the buyer nor does it mean that these rights come into existence for the first time only upon the sale of the ticket to the buyer as urged by counsel for the dealers. Such disability imposed upon the promoter by the Rules is necessary to create confidence in the participants about the promoter's bona fides in the raffle scheme and prevents the scheme being viewed as a fraudulent or fishy affair. In other words a transfer of the rights from the promoter (grantor) to the buyer (grantee) is clearly involved in the sale of a lottery ticket. The contention is, therefore, rejected. Another facet of this right to participate in the draw which is transferred to the purchaser of a lottery ticket as distinct from the right to receive or claim a prize in such draw, needs to be highlighted which has a significant bearing on the question whether the lottery tickets would be goods or not. It cannot be disputed that this 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x cannot be taken in a narrow sense and merely because electric energy is not tangible or cannot be moved or touched like, for instance, a peace of wood or a book it cannot cease to be movable property when it has all the attributes of such property. It is needless to repeat that it is capable of abstraction, consumption and use which, if done dishonestly, would attract punishment under section 39 of the Indian Electricity Act, 1910. It can be transmitted, transferred, delivered, stored, possessed, etc., in the same way as any other movable property .........If there can be sale and purchase of electric energy like any other movable object we see no difficulty in holding that electric energy was intended to be covered by the definition of 'goods' in the two Acts. If that had not been the case there was no necessity of specifically exempting sale of electric energy from the payment of sales tax by making a provision for it in the Schedules to the two Acts." Similarly in A.V. Meiyappan v. Commissioner of Commercial Taxes [1967] 20 STC 115; AIR 1969 Mad 284 the owner or producer of a film, instead of exhibiting the film himself, by entering into an agreement conferred upon another p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the goods is involved. In view of these conclusions the impugned amendments made in the two concerned Acts for levying tax on sale of lottery tickets will have to be upheld as falling within the legislative competence of the concerned State Legislature under entry 54 of List II in the Seventh Schedule and, therefore, we think it unnecessary to go into the validity of the alternative submission made by the learned Attorney-General that legislative competence for enacting the impugned amendments would also be there under entry 62 of List II in the Seventh Schedule of the Constitution. Having thus disposed of the main contention raised on behalf of the dealers, we shall now proceed to deal with the challenge to the exemption Notification G.O. Ms. No. 219 dated March 31, 1984, issued by the State Government of Tamil Nadu which is alleged to be violative of articles 14, 19(1)(g) and 301 read with article 304(a) of the Constitution. Such challenge has been raised only by the petitioner in Writ Petitions Nos. 435 and 436 of 1985. Under the impugned amendment made in the Tamil Nadu Act by insertion of entry 163 in the First Schedule to the Act lottery tickets became taxable at the poin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t April, 1984. 4.. The procedure for accounting will issue separately in consultation with the Commissioner of Raffles and Commissioner of Commercial Taxes. 5.. The Commissioner of Raffles is requested to give wide publicity on these orders immediately. (By Order of the Governor) C. Ramachandran Commissioner and Secretary to Government." According to the petitioners the arrangement under the notification is that the raffle department of the Government of Tamil Nadu pays the tax to the commercial taxes department of the Government of Tamil Nadu and the tax is not passed on to the purchaser; in other words, effectively exemption from payment of sales tax is granted to the purchaser. Thus in substance lottery tickets issued by the Government of Tamil Nadu do not suffer any tax while on the other hand the lottery tickets issued by other Governments and sold within the State of Tamil Nadu are subject to tax. The net result is that sale of lottery tickets of other Governments within the State are at a great disadvantage as compared to the sale of Tamil Nadu Government lottery tickets inasmuch as a Tamil Nadu Government lottery ticket of the face value of Re. 1 will b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .K. Nataraja Mudaliar [1968] 22 STC 376 (SC); [1968] 3 SCR 829 and V. Guruviah Naidu Sons v. State Tamil Nadu [1976] 38 STC 565 (SC) and counsel pointed out that as a result of these decisions the legal position has been well-settled that freedom of trade, commerce and intercourse guaranteed by article 301 includes freedom from tax laws if such tax laws, not being of compensatory or regulatory nature, directly and immediately impede or hamper the free flow of trade, commerce and intercourse throughout the territory of India and that if such law accords discriminatory treatment to goods imported from other States as compared to similar goods manufactured or produced in the State the same would be clearly violative of article 304(a) and since in the instant case such situation obtains under the impugned notification the same will have to be struck down as being violative of article 304(a). I find considerable force in the aforesaid contention of counsel for the writ petitioners. It is unnecessary to deal with all the decisions cited by counsel but it will suffice if reference is made only to the decision in A.T.B. Mehtab Majid and Co.'s case [1963] 14 STC 355 (SC); [1963] Supp 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Government since they are not the first sellers of those tickets and that if this distinction is kept in view there cannot be violation of article 301 read with article 304(a) of the Constitution; further, it is also stated that in the case of sales of Tamil Nadu Government lottery tickets the State Government are the first sellers and as such they have to bear the tax on the sale of such tickets and it is well-settled that it is open to such first seller either to pass on the tax and collect it from the buyer or to bear the liability himself without passing on the same to the buyer. In my view neither of these aspects has any real bearing on the issue raised by counsel on behalf of the writ petitioners. These aspects cannot obliterate the glaring fact that because of the notification imported goods are at a disadvantage as compared to indigenous goods, both being of identical type. The real question is whether the direct and immediate result of the impugned notification is to impose an unfavourable and discriminatory tax burden on the imported goods (here lottery tickets of other States) when they are sold within the State of Tamil Nadu as against indigenous goods (Tamil Nadu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of the lottery ticket. This contention has caused me anxiety from the jurisprudential point of view. I agree with respect that "grant" is an agreement of some sort which creates rights in the grantee and an agreement which transfers rights may be termed as assignment. But the question, is, before the grant, was such a right, namely, the right to participate in the draw, existing in the grantor? The point made is that there is no transfer of property involved in the issue of a lottery ticket and it is only after the issue of the lottery ticket that the grantee gets a right to participate. In other words, it was sought to be urged that in a lottery, the promoter sponsoring it does not have any right to participate nor to claim a prize in a draw and these come into existence for the first time by the purchase of lottery ticket when he purchases the ticket and therefore it cannot be said that any transfer of right is involved, but only creation of new rights by the grantor in favour of the grantee. I respectfully agree with my learned brother that the passage relied on on behalf of the counsel for the dealers at page 553 of Vol. I, 7th Edition of Kanga Palkhivala's Law and Pra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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