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CASE NO.:

Appeal (civil) 4552 of 1998

PETITIONER:

Sunrise Associates

RESPONDENT:

Govt. of NCT of Delhi & Ors.

DATE OF JUDGMENT: 28/04/2006

BENCH:

Ruma Pal & B.N. Srikrishna & S.H. Kapadia & Tarun Chatterjee & P.P. Naolekar

JUDGMENT:

JUDGMENT

WITH

CA. NO.4553-4557/1998, 4913, 6256-6260/1998,

177-179/1999, 2155/2000, 6893 of 2003 & SLP(C) Nos.2469,

2473, 2614, 2617, 2507, 2841, 5225-26, 5608, 11129, 11768

of 2000, W.P. (C) No.33/2002, 127/2005 & SLP (C)

NOS.18466/2002, 16270/2001, 6907/2002, 17894/2002

Delivered by

RUMA PAL, J.,

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.

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.

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

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three-Judges had agreed with the decision of H. Anraj, it was

necessary that the appeal should be heard by a Constitution

Bench.

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".

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 contractor agreed to set up a building would not be a

contract for sale. It was one contract, entire and indivisible

and there was no separate agreement for sale of goods

justifying the levy of sales tax by the provincial legislatures.

Parties could have provided for two independent agreements,

one relating to the labour and work involved in the erection of

the building and the second relating to the sale of the material

used in the building in which case the latter would be an

agreement to sell and the supply of materials thereunder, a

sale. Where there was no such separation, the contract was a

composite one and it was not classifiable as a sale.

The narrow definition put on the word "sale" by Gannon

Dunkerley was followed by Courts in several cases excluding

other transactions such as hire purchase, long leases etc. from

the scope of "sale" on the ground that one or more of the three

components of sale were absent. Consequently Article 366 of

the Constitution was amended by introduction of Clause 29A

which is to the effect that "tax on the sale or purchase of

goods" for the purposes of the Constitution would include six

particular transactions which were, by virtue of judicial

decision, excluded from the phrase. We are concerned with the

first class of transaction so included namely:

(a) a tax on the transfer,

otherwise than in

pursuance of a contract, of

property in any goods for

cash, deferred payment or

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other valuable

consideration;

xxx xxx xxx

xxx xxx xxx

and such transfer, delivery or supply of any

goods shall be deemed to be a sale of those

goods by the person making the transfer,

delivery or supply and a purchase of those

goods by the person to whom such transfer,

delivery or supply is made;

Therefore in order to constitute a deemed sale within the

meaning of Art. 366(29A) (a), there has to be 1) goods 2) a

transfer of property in the goods 3) valuable consideration.

The requirement of an agreement for sale is not necessary for

constituting a sale under this sub-clause. The absence of any

one of these elements would mean that the transaction far

from being a sale within the Gannon Dunkerley definition,

would not even be 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,

hypothecation, charge or pledge) by one

person to another in the course of

business for cash, deferred payment or

other valuable considerations;

Other clauses give extended meanings which are not

material.

Similarly the expressions 'goods' and 'sale' were defined

in Section 2(d) and (g) respectively of the Bengal Act thus:

"2(d) 'goods' include all kinds of

movable 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.

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These definitions of 'goods' reflect the definition of the

word in the Sales of Goods Act, 1930 which reads:

"every kind of movable property other

than actionable claims and money;

and includes stock and shares,

growing crops, grass, and things

attached to or forming part of the

land which are agreed to be severed

before sale or under the contract of

sale".

All these definitions exclude inter alia an actionable claim

from the definition of "goods". An "actionable claim" has in

turn been defined in Section 3 of The Transfer of Property Act,

1882 as meaning:

"a claim to any debt, other than a debt

secured by mortgage of immoveable

property or by hypothecation or pledge of

moveable property, or to any beneficial

interest in moveable property not in the

possession, either actual or constructive,

of the claimant, which the Civil Courts

recognize as affording grounds for relief,

whether such debt or beneficial interest be

existent, accruing, conditional or

contingent".

The dealers' (who were the appellants in H. Anraj)

contention was that a lottery ticket was only a slip of paper or

memorandum evidencing the right of the holder to share in the

prize or the distributable funds and was merely a convenient

mode for ascertaining the identity of the winner. It was

contended that a sale of a lottery ticket was nothing more than

a sale of a chance to win a prize, and therefore, it was merely a

contingent interest in money. Alternatively it was submitted

that the lottery tickets were in fact actionable claims within

the meaning of Section 3 of the Transfer of Property Act, 1882,

and therefore, outside the definition of "goods" under the Sales

Tax Acts.

The Court in H. Anraj came to the conclusion that the

transfer of a lottery ticket upon consideration 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

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purchaser for a price\005\005\005\005\005\005\005\005\005\005

......the two entitlements which arise on

the purchase of a lottery ticket are of a

different character, inasmuch as the right

to participate arises in praesenti, that is

to say it is a choate on perfected right in

the purchaser on the strength of which

he can enforce the holding of the draw,

while the other is inchoate right which is

to materialize in future as and when the

draw takes place depending upon his

being successful in such draw. Moreover,

on the date of the purchase of the ticket,

the entitlement to participate in the draw

can be said to have been delivered into

the possession of the purchaser who

would be enjoying it from the time he has

purchased the ticket and as such it

would be a chose in possession while the

other would be an actionable claim or a

chose in action as has been held in

Jones v. Carter and King v. Connare

on which counsel for the dealers relied. It

is 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."

It was also said that :-

" If incorporeal right like copyright or an

intangible thing like electric energy can

be regarded as goods exigible to sales tax

there is no reason why the entitlement to

a right to participate in a draw which is

beneficial interest in moveable property

of incorporeal or intangible character

should not be regarded as 'goods' for the

purpose of levying sales tax. As stated

above lottery tickets which comprise such

entitlement do constitute a stock-in-trade

of every dealer and therefore his

merchandise which can be bought and

sold in the market. Lottery tickets

comprising such entitlement, therefore,

would fall within the definition of 'goods'

given in the Tamil Nadu Act and the

Bengal Act."

The Court also rejected the submission of the counsel for

the dealers that a sale of a lottery ticket does not involve the

transfer of any right. The contention was that just as a

company before it issues share capital does not hold any of the

shares which come to exist only in the hands 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

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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:-

"\005the 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 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 licenced agents or

wholesalers or dealers of such tickets are

enabled to 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."

The Court also relied upon the decision in United States

Vs. Mueller to hold that for the purpose of imposing 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.

Justice Mukharji (as His Lordship then was) concurred

with some hesitation with the decision of Justice Tulzapurkar,

J. who delivered the main judgment, particularly with regard

to the question of transfer of a right by the seller of the lottery

ticket to the purchaser. This hesitation is more than clearly

brought out in his short judgment where he said:-

" 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 derogation of

the rights of the State. The State in my

opinion, can create such right for the first

time, and such transfer of the right by

the state as a promoter would amount to

a transfer of property and being in

consideration of a price can be sale of

goods\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005..

I should, however, not be understood to

accept the position that if private lotteries

are permissible and legal, a point which

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need not be decided in these cases, in

such cases sale of goods was involved or

not."

Both learned Judges, however, agreed that the right to

participate in the draw under a lottery ticket was a valuable

right and that 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 dealers

merchandise and, 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 licences

specifically permitted transferability of the licences. This Court

considered the definition of "goods" in the Constitution, in the

Sales of Goods Act 1930, the Central Sales Tax Act, 1956 the

Tamil Nadu General Sales Tax Act, 1959, the Karnataka

Sales Tax Act, 1957, as well as the Kerala General Sales Tax

Act, 1963 and said that all these definitions provided that

goods mean inter alia all kinds of moveable property. The

definition of property in several authorities was thereafter

considered and it was concluded that the material on record

showed a uniform emphasis on the expansive manner in

which the expression 'property' was understood. It was noted

that debts, contracts and other choses in action were chattels

no less than furniture or stock in trade. Similarly, patents,

copyrights and other rights in rem were also included within

the meaning of moveable property. The Court rejected the

argument that REP licences were actionable claims within the

meaning of Section 3 of the Transfer of Property Act and said:-

"When these licences/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. Indeed, in H. Anraj

the main contention of the petitioners

was that a lottery ticket was in the nature

of an actionable claim. The said

argument was rejected after an elaborate

discussion of law on the subject. We

agree with the said decision and on that

basis hold that the REP Licences/Exim

Scrips are not in the nature of actionable

claims." (para 35 pg.449)

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Relying on the decision in H. Anraj and Vikas Sales

Corporation the Delhi High Court in the judgment on which

the referral order has been passed, rejected a challenge to the

constitutional validity of Section 4(1) (cc) of the Delhi Sales Tax

Act, 1975 as introduced by the Delhi Sales Tax (Second

Amendment) Act 1994 with effect from 2.1.1995. The

amendment was challenged by the dealers on various

grounds. It was argued inter alia that the sale of lottery tickets

did not involve a sale of goods within the meaning of the Sales

Tax Act, and that even if it did, only that right which was held

to be a sale namely, the right to participate in the draw could

be subject to Sales Tax. The value of the right to win the

lottery 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 \005\005\005leaves 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. But at more places

than one they have clearly said (i) lottery

tickets are movable property as opposed

to immovable property, (ii) the

assumption of lottery tickets being

contractual documents cannot militate

against their being goods, (iii) till the

draw takes place they are freely marketed

as goods, and (iv) they must be regarded

as the dealer's merchandise or stock in

trade freely changing hands. The lottery

tickets have a value of their own de hors

their components".

Having held that the decision in H. Anraj decided that

the lottery tickets themselves were goods, the High Court

differed with the view expressed by the Karnataka High Court

in Nirmal Agency v. Commercial Tax Officer (supra) which

had proceeded on the basis that H. Anraj had held that the

goods in a sale of lottery tickets comprised of the rights to

participate in the draw and the chance to win.

Before us the appellants, who are dealers in the sale of

lottery tickets, have submitted that H. Anraj wrongly drew a

distinction between the right to participate in the draw and

chance to win the prize. It was submitted that such

bifurcation was artificial as both were part of the same

transaction. It was submitted that even on the "two rights"

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theory each of those rights would be choses in action. As far

as the decision in Vikas Sales is concerned, it was submitted

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 services 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. 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 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 has addressed us 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

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"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 (supra) has been relied

on, which it was urged, should be reaffirmed. The other

appearing States have adopted the arguments made on behalf

of the NCT, Delhi and Tamil Nadu and Maharashtra.

It is necessary at this stage to clarify that the order of

reference in Sunrise V. NCT, Delhi (supra) is limited to the

question whether lottery tickets are 'goods'. We have not been

called upon to answer the question whether REP licences (or

the DEPB which has replaced the REP licences) are 'goods'.

Although we have heard counsel at length on this, having

regard to the limited nature of the reference, we do not decide

the issue. The decision in Vikas Sales was referred to 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 "goods". However, the Court qualified

that statement immediately by saying that the questions

whether tickets constituted goods properly 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, would

be considered subsequently in the judgment.

B: In paragraph 27 of the report (which we have quoted

earlier), the Court categorically stated that a lottery ticket was

goods - not as a physical article but as a slip of paper or

memorandum evidencing 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. This is reiterated in

paragraph 29 of the report. It was also stated that for the

purpose of imposing the levy of sales tax, lottery tickets

comprising the entitlement to a right to participate in a draw

would have to be regarded as goods properly so called.

C: In the same paragraph the Court said what is transferred

to the purchaser is the right to participate in the draw. That is

the 'goods' which was a chose in possession. The same right

has been later described as the beneficial interest in movable

property, that is to say that the right was not the movable

property itself.

D: Then again in paragraph 30 it was said:-

"30. It is true that this entitlement to a

right to participate in the draw is an

entitlement to beneficial interest which is

of incorporeal or intangible nature but

that cannot prevent it from being

regarded as goods".

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This again indicates that it is the right to participate in

the draw which was being described as the goods. Otherwise it

was not necessary to refer to other incorporeal rights which

had been judicially recognized as goods for the purposes of

levying sales tax such as copyrights or intangible rights such

as electricity.

Ultimately, however, clarity in the matter is brought

about by the concurring judgment of Justice Sabyasachi

Mukharji (as his Lordship then was), when he said:-

"I, however, agree with my learned

brother that the 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 actually takes place and

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 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.

We have noted earlier that 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

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'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.

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 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.

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. (See

Jaffer Meher Ali Vs. Budge-Budge Jute Mills Co.(1906) 33

Cal.702). There may also be assignments of an actionable

claim dehors Section 130 (See Bharat Nidhi Ltd. Vs.

Takhatmat (1969) 1 SCR 595). Negotiable Instruments,

another species of actionable claim, are transferable under

the Negotiable Instruments Act 1881. Transferability is

therefore not the point of distinction between actionable

claims and other goods which can be sold. The distinction lies

in the definition of actionable claim. Therefore if a claim to the

beneficial interest in movable property not in the vendee's

possession is transferred, it is not a sale of goods for the

purposes of the sales tax laws.

An actionable claim would include a right to recover

insurance money or a partner's right to sue for an account of a

dissolved partnership or the right to claim the benefit of a

contract not coupled with any liability (see Union of India V.

Sarada Mills (1972) 2 SCC 877, 880). A claim for arrears of

rent has also been held to be an actionable claim (State of

Bihar V. Maharajadhiraja Sir Kameshwar Singh 1952 SCR

889, 910). A right to the credit in a provident fund account

has also been held to an actionable claim ( Official Trustee,

Bengal v. L. Chippendale, AIR 1944 (Cal.) 335; Bhupati

Mohan Das v. Phanindra Chandra Chakravarty & Anr. AIR

1935 (Cal.) 756). In our opinion a sale of a lottery ticket also

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amounts to the transfer of an actionable claim.

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.

Webster's 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".

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 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

purchaser's 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. Significantly in B.R. Enterprises V. State of

U.P.and Ors. (1999) 2 SCC 700 construing H.Anraj the

Court said

"52. So, we find three ingredients in the

sale of lottery tickets, namely, (i) prize, (ii)

chance, and (iii) consideration. So, when

one purchases a lottery ticket, he

purchases for a prize, which is by chance

and the consideration is the price of the

ticket".

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

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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. The Supreme Court of Appeals of West Virginia, in West

Virginia in State of West Virginia vs. John Wassick 156

W.Va.128, 191 S.E.2d 283, held that "free plays" which

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 transfer is an

actionable claim, since an actionable claim may be existent,

accruing, conditional or contingent.

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.

We may with profit compare the views of other countries

having similar systems of law as our own as to whether the

sale of a lottery ticket is a sale of goods or an actionable claim.

The High Court of Australia had held in Van Rassel v. Kroon

[1953] HCA 3: (1953)87 CLR 298 (4 March 1953):

"The person in whose name the

lottery ticket issues obtains the legal

title to what is a chose in action".

In Jones Vs. Carter 8 Q.B. 134 a lottery was held

regarding the outcome of a horse race. The subscribers paid a

sum of money and then drew lots. On each lot was written the

name of a horse. If that horse won, the subscriber with the

name of that winning horse got a prize. The original

subscriber sold his ticket to Jones. The horse named on that

ticket won the race. When Jones approached the organizers of

the race for payment, they refused to pay. Jones filed a suit

for recovery of the money. His suit was dismissed on the

ground that there was no privity between the organizers of the

race and Jones. The court also held :-

"Though there may have been a valid

assignment, it was of a chose in action;

and the law does not permit the party

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interested to sue on such a transfer."

The views expressed correctly represent the law in this

country as well.

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.

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.