Delhi Sales Tax Act, 1975;

Lottery tickets - Whether goods - Sale of - Liability to sales tax - Held, sale of a lottery ticket amounts to the transfer of an actionable claim and as such it is not a sale of goods for the purposes of the sales tax laws - Article 366(29A)(a), Constitution of India - Sections 3 and 130 of the Transfer of Property Act, 1882.

On the question whether sales tax can be levied by States on the sale of lottery tickets, a Bench of two-Judges has held in H. Anraj v. Government of Tamil Nadu, [1986] 1 SCC 414, 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 Judges were of the opinion that while the second right was a chose in action and therefore not 'goods' for the purpose 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. Against the 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 construing H. Anraj and holding that lottery tickets were goods and are liable to sales tax under the Delhi Sales Tax Act, 1975, several appeals have been filed 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 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 had to be heard by a Constitution Bench.

The appellants, who are dealers in the sale of lottery tickets, have contended that H. Anraj wrongly drew a distinction between the right to participate in the draw and chance to win the prize. Such bifurcation was artificial as both were part of the same transaction. It was further contended that even on the "two rights" theory each of those rights would be chose in action. As far as the decision in Vikas Sales is concerned, it was contended that the additional reason given namely, free transferability for holding that a particular thing was goods, was erroneous. It was pointed out that even actionable claims such as negotiable instruments and debentures may be freely transferable. As far as the DEPB is concerned, according to the appellants, it was in the nature of a notional credit which an exporter acquires on export by way of an entry in a passbook. This credit was utilizable by the importer to be adjusted against the import duty payable on goods imported. The credit was freely transferable but it could not be said to be goods only by that reason. At best it was an actionable claim. According to some appellants, the right to participate in a draw which was held to be a sale of goods by H. Anraj was only a right to service rendered by the lottery organizers. There was no transfer of any moveable property in the entire transaction. It was also submitted that when there were divisible elements in a contract, the predominant element would determine 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.

The State Governments have not taken consistent stands. The Government of the National Capital Territory of Delhi advanced the very arguments which had been made, considered and rejected in H. Anraj's case. It was submitted that the reasoning in H. Anraj did not require reconsideration. It had held the field for several decades and had been followed in a number of cases. It was submitted that a lottery ticket represents a commodity within the meaning of Article 366(12).

The State of Tamil Nadu on the other hand submitted that the lottery ticket itself was a chattel or goods and, therefore, falls squarely within the net of taxation under the Tamil Nadu Sales Tax Act. It was submitted that there can be a value addition to the lottery tickets by valuing all the rights accruing to the holder of the ticket, but these additional rights did not detract from the fact that the lottery ticket itself is an item of merchandise and liable to be sold as such. Reliance was also placed on the General Clauses Act with regard to the definition of moveable property. It was contended that since a lottery ticket was not immoveable property it was moveable property and, therefore, goods.

The State of Maharashtra addressed on the question whether the sale of a Duty Entitlement Pass Book (DEPB) should attract sales tax under the Bombay Sales Tax Act, 1959. It was submitted that considering the valuable right conferred by the DEPB, it is an item of movable property and therefore 'goods' within the definition of the word in Section 2(13) of the Act. The definition in common with other State Sales Tax Acts includes every kind of movable property other than actionable claims and money. It was submitted that "actionable claim" as defined in Section 3 of the Transfer of Property Act, is substantially different from the concept of "chose in action" in English law and it was submitted that what is a 'chose in action' was not necessarily an actionable claim. The reasoning in Vikas Sales was urged to be reaffirmed. The other appearing States have adopted the arguments made on behalf of the NCT, Delhi and Tamil and Maharashtra.