Supreme Court of India
H. ANRAJ ETC.versusGOVERNMENT OF TAMILNADU ETC.
- Citation
- 1985 INSC 221
- Decided
- 4 October 1985
- Disposal
- Disposed off
- Bench
- V D TULZAPURKAR
Holding
Lottery tickets, to the extent they confer the right to participate in a draw, are movable property and therefore "goods"; the amendments are constitutionally valid under Entry 54 of List II, but the exemption Notification 219 is unconstitutional as discriminatory.
Summary
The Supreme Court examined whether state lotteries organised by Tamil Nadu and West Bengal could be taxed under the states' sales‑tax statutes. The petitioners, dealers in lottery tickets, argued that lottery tickets are not "goods" but merely actionable claims, rendering the amendments to the Tamil Nadu General Sales Tax Act, 1959 and the West Bengal Finance (Sales Tax) Act, 1941 unconstitutional under Entry 54 of List II. The Court held that a lottery ticket confers a transferable right to participate in a draw, which is a movable property interest and therefore falls within the definition of "goods" under the Sale of Goods Act, 1930; consequently the amendments are within legislative competence. However, the Court struck down Tamil Nadu's Notification 219 (31 March 1984) which exempted purchasers of state‑issued tickets from the tax, finding it discriminatory against out‑of‑state tickets and violative of Articles 301 and 304(a) of the Constitution. The levy of sales tax was upheld, the exemption was struck down, the civil appeal was dismissed and the writ petitions were partially allowed.
Issues considered
- The nature of a lottery ticket: whether it constitutes "goods" within the meaning of the Sale of Goods Act and thus falls under Entry 54 of List II for sales‑tax purposes.
- Whether the amendments to the Tamil Nadu General Sales Tax Act, 1959 and the West Bengal Finance (Sales Tax) Act, 1941 are within the legislative competence of the respective State Legislatures.
- Whether the exemption Notification 219 issued by the Tamil Nadu Government discriminates against out‑of‑state lottery tickets, violating Articles 14, 301 and 304(a) of the Constitution.
- Whether the tax could alternatively be characterised under Entry 62 of List II (betting and gambling).
Legislation cited
- Constitution of Indias. Article 14, s. Article 258(1), s. Article 301, s. Article 304(a), s. Article 366(12), s. Entry 40 List I, s. Entry 54 List II, s. Entry 62 List II
- General Clauses Act, 1897s. 3(26)
- Sale of Goods Act, 1930s. 2(7)
- Tamil Nadu General Sales Tax Act, 1959s. 3, s. 59(2)
- Transfer of Property Act, 1882s. 3
- West Bengal Finance (Sales Tax) Act, 1941s. 4
Subjects
sales taxlotterygoodsactionable claimconstitutional lawArticle 14Article 301Article 304(a)legislative competenceEntry 54 List IIEntry 62 List IIdiscriminationfree tradetransfer of property
Judgment
342
H. ANRAJ ETC.
A v.
GOVERNMENT OF TAMILNADU ETC,
OCTOBER 4, 1985
[V, lJ, 'IULZAPURKAR AND SAllYASA.Clil MUKHARJl I JJ. J
B
Sales Tax on the sale of lottery tickets - The Tamilnsdu
General Sales Tax Act, 1959 amending section 59(2) and the West
Bengal Taxation Laws (second amendment) Act, 1984 making appro-
priate additions to sections 5(l) (aa), 5(l) (dd), 5(2) (a) (vb)
and 5(2) (v) (iva) to the Bengal Finance (Sales Tax) Act, 1941
are within the legislative competence of the Stste L.egislature
c and covered by Entry 54 of List lI in the Seventh Schedule -
Concept of a lottery, lottery ticket, "goods", "sale", "movable
property" and "immovable property" - Whether the sale of a
lottery ticket il\volves a transfer of property in goods and
therefore a sale of goods - Constitution of India, 1950 1 Article
3bb(l2) read with 1ections 2(j) and i(n) of the Tamil Nadu c;sT
Act and sections i(d) aild (g) of the aengal Act section 2(7) of
u the Sale of !;oods Act, section 3 of the Transfer of Property Act
and section 3(26) of the General Clauses Act - Whether c.l.lMs 219
dated 3l.3.l984 of the Tamil Nadu !;overnment iB diacriroinstory
and violative of Article 14 and 304(9) of the Constitution.
The subject of "lotteries" organised either by the Govern-
E ment of India or by the Government of a State falls within the
Ullion 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 Stetea
only under Article 258(1) of the Constitution on entruatment of
that function by the Union to the concerned State. By virtue of
F that power entrusted to them by Presidential ordera, the Govern-
ment of Tamil Nadu and the Government of Weit Bengal organieed a
State lottery by apo1111oring a l!affle echeme and framing appro-
priate Rulea in that behalf. The State Governments were aleo
deairou1 of levying aalee tax on the isle of the lottery ticket•
by placing the incidence thereof on every dealer aelling such
G ticket• within the State.
In the State of Tamil Nadu 1 by a Notification GOP No. 77
dated January 28, 1984 i11ued under aection 59 of the Tamil Nadu
General Sales Tax Act, 1959 the State Government ill8erted an
II
(
H.ANRAJ V• GOvr. OF TAMILNADU 343
Entry 163 in the F.f.rst Schedule to the Act whereby lottery
tickets were brought within the purview of the charge· and tax at A
the rate of 20% was levied on the sale of such tickets "at the
point of first sale in the State." This Notification was lster
followed by a regular legisl.a"tive amendment made in the Act as
required by section 59(2). . Under the Raffle scheme so
promulgated, the first sale of lottery tickets issued thereuDder
was by the State Government of Tamil Nadu to various llceQCed B
··agents, whole salers, stockists etc. and the State Government
became liable to pay sales tax as the first dealer• Therefore,
the Finance (Raffle) Department of the State Goverment issued a
Notification W1s 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 wa~ not passed on to the C
licenced dealer or to purchaser; in other- words effectively
exenption from payment of aales tax was granted to the purchaser.
Shri· H. · Anraj the comnon petitioner, in both the writ petitions
· filed under Article 32 of the Constitution, who has been carrying
on business in the State of Iamil. Nadu as ·a dealer in lottery
tickets issued by the Royal Government of Bhutan, the State. of ; D
Assam and various other lotteries, has challenged the validity of
both the levy of sales tax on the sale of lottery ticket.a as also
the execption granted under Notifkation GOMs 219 · dated
31.3.1984.
In. West Bengal, the State Legislsture promulgated the West · E
Bengal Taxation L.iws (second amendment). Act, 1984 whereuDder by
making appropriate amendments (by way of additions) to sections
5(l)(aa) ,5(l)(dd) ,5(2)(a) (vb) and 5(2)(v) (iva) of the Bengal
Finance (Sales Tax) Act 1941 sales tax at the rate of 20% was
levied on the taxable'turnover of every deiiler in regard to the
sale of lottery tickets. By a Notification NO. 1020 FT 'dated
March 29, 1984 the levy imposed under the aforesaid amendinents p
was brought into force with effect from May l, 1984. By a writ
petition filed "in the Calcutta High Court the appellants (being
three petitioners who carry on . business ·in the State of West
Bengal·as-agents and stockists of various lotteries organised by
different States including the State of, West Ben;:al) challenged
the validity of the aforesaid amendments made in the Bengal _ G
Finance (Sales Tax) Act,' 1941 whereuDder · sales tax has been
levied on the sale of •lottery tickets substantially on the ground
that' a lottery ticket when sold represented an actionable claim
and not "goods" and such a transaction being merely a sale of a
chance to win a prize in the draw waa not exigible to sales tax ~
and, therefore, the amendments made were beyond the'legislstive
H
344 SUPRllME Ci)(JRT REPORTS [1985] SUPP.3 s.c.R.
A
competaace of the State Legialature, aa Entry 54 of Liat II in
tha S.venth Schedule authoriaes legialation levying aales tax
only on the aele or purchaae of "goods"; the matter ultimately
went before • Diviaion Bench of that Court which by it1 judgment
and order dated August 14, 1984 dismissed the writ petition
upholding the constitutional validity of , the amendments in
question as also the levy imposed thereunder. In substance the
lligh Court came to the conclusion 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
the List 11 to enact the concerned amendment& levying sales tax
on the sale of lottery tickets. Hence the appeal by special
c leave.
The following contentions were rai1ed on behalf of the
sellitlg agental (i) the levy of sales tax on the &ale of lottery
is not valid on the sole ground of lack of legialative competence
on the part of the concerned State Legislatures; (ii) 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
leyy 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 Legislature has purported to act in
the exercise of its own taxill8 power under Entry 54 of the List
II, which enables legislation 1mposill8 a tax, inter alia on "sale
of goods". 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 and "goods" under section 2(7)
thereof comprises within its scope every kind of movable property
but specifically excludes actionable claim. The essence of
lottery being a chance for a prize for a price the sale of
lottery tickets is not a sale of goods and therefore, the leyy of
sales tax on sale of lottery tickets would be beyond the ambit of
Entry 54 of List II; (iii) Alternatively, a lottery ticket is an
actionable claim as defined in section 3 of 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 leyy is outside Entry 54
of List II; (iv) So far as the Madras Act is concerned the State
Government's Notification GOMs. lio, 219 dated March 31, 1984 is
discriminatory and violative of Article 14 and Article 304 (a) of
the Constitution inas1D11ch as thereunder the burden of sales
H
1-1 .At.'l!AJ v, GOVT, OF Tl\MILNADU 345
tax, aur"'Charge and additio1111l sur-charge is prohibited to be A
passed on to the purchaser of Tlllllil Nadu lottery Tickets while
there is no such aWlsr treatment given to the lottery tickets
of other States which are being sold in the State of Tamil Nadu
thereby putting the sale of other lottery tickets at a serious
disadvantage. The respond~ts refuted the validity of the grounds
and contended: (i) for deciding the legislative competence of the
impugned Amendments levying sales-tax of lottery tickets, apart
from Entry 54 of List II ("taxes on the sales or purchaae of
goods") Entry 62 of List II ("Taxes on .... betting and gambling")
lllllSt be looked into. If the dealer's contention were correct that
lottery is a chance and when a lottery ticket is sold it is a
chance that is sold, then the tax in the present case would be a C
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;
(ii) a lottery ticket is "goods" within the definition of that
expression given ill the two Acts as also in the Sale of Goods D
Act, 1930 and not purely an actionable cl.aim; (iii) a sale of
a lottery ticket confers on the purchaaer two rights (a) a right
to participate in the draw and (b) a right to claim a prize if
successful in the draw and thoush the latter may be an actionable
claim the former constitutes beneficial interest in the movable
property (incorporeal in character) in possession of the holder E
of the ticket and hence "goods" capable of being possessed and
bought or sold; and (iv) as regards the exemption granted by the
Tamil Nadu Government under Notification No. GQMs, 219 dated
March 31, 1984 the circumstance 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 F
· the purchaser and bear it himself ·aru1 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.
Dismissing the appeal and allowing the writ petitions in
part, the Court G
lll!lll: (Per Tulzapurkar, J.) 1.1 1he Amendments made to the
Tamil Nadu General Sales Tax Act, 1959 and ·the Bengal Finance
(Sales Tax) Act, 1942 imposing a lev)i for the first time on such
sales of lottery tickets fall within the legislative competence
of the concerned State Legislature under Entry 54 of List II in
the Seventh Schedule. [374 A-B] H
346 SUPWlE COURT l\EPORIS [1985) SUPP.3 S;C.R.
A
l.2 The lottery tickets to the extent thst they comprise
the entitlement to participate in the draw are "goods" properly
. so called, squarely . falling within the definition of thst ·
expression as given in the Tamil Nadu Act, 1959 and the Bengal
Act, 1941 and to thst extent, they .are not "actionable claims"
B and in every sale thereof, a transfer of· property is involved.
[373 G-ll; 374 A]
· , - l.3 From a combined reading of· section 2(7) of the Sale
of GOods Act and section 3(26) of the General Clauses Act, 1897,
it is·. clear . thst _when section 2(7) of the Sale of goods Act
defines- "gOOds" as meaning "every kind of lllCVable property other
c than ·actionable cla:lms · and 1110ney", the , expression "lllCVable
property" occurring therein must mean property of every descrip-
tion except immovable property. Since lottery tickets cannot be
regarded as :!movable property, but would, therefore, be "movable
property" and as such they will fall within the expression
"gooda~· [364 C-E]
D 2.1 Whether by reason of a sa1e of lottery ticket merely a
contractual document come into existence or along with - the
clelivery 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 Bules ·governing the Raffle Scheme. Even proceeding on the
E usumption thst lottery tickets are contractual documents thst
fact cannot militate against the tickets being goods and certain
r18hts thereunder being transferred to. the purchaser. [365 D-F]
2.2 The-delivery of a lottery ticket issued under the Bules
governiDg the Raffle Scheme in the instant case to a purchaser
' F thereof is obviously not a mere -contract creating £n obligation -
'- or r18ht in personam between part:l,es to it, but would be in the
------
-
------ '"!ture of a grant. [366 C-D)
2.3 It is well settled ,thst rights and benefits arising
· lmder agreements in the nsture of a grant, unless or a personal
·c Mture~ partake of the character of personalty as opposed to
- realty and therefore, lllOVable property, capable of being assigned
or tranaferred. As opposed to personal rights, like life, liberty
or reputation, these would be proprietory rights and benefits and
hence iI>cludible in property.· In the csse of agreements in the
--·- Mture of a grant, the right or benefits arising thereunder would
I
' H - be property 1110re .so when a party thereto _has beca:;e entitled to
I
the same on performing his part of the contract and in fact such
I rights or benefits would also be assignable. [366 D-E; 367 B-c]
li,ANRAJ v. GOVT. OF !AMILNADU 347
Swami Motor Transport (P) Ltd. and Anr. v. Sri SlulUx~ A
gal. 11utt and Arlr·, [1963) Suppl. l SCR 282 at 306 - 307 M/••
Amlllr ihsn Mdlboob & Coo V• State of Madhya Pradesh 8lld Orao,
[1966) 2 SCR 40 at 49-52 distinguished.
2.4 ln every Raffle Scheme bssed on the sale of lottery
tickets, aimilsr to the schemes sponsored by each of the two B
State in this case, a participant is required to purchue a
lottery ticket by paying a price therefor (the face value of the
ticket) and auch purchase entitles him not merely to receive or
clsim a prize in the draw, if succes1ful but, before that, al10
- to participate in such draw. ln other words, a 1ale of a lottery
ticket confera on the purchaser thereof two rights (a) a right to c
participate in the draw and (b) a right to cl.aim a prize
contingent upon hie being 1uccea1ful in the draw. Both would be
benefic:lal intere1t1 in movable property, the former "in
preaenti"; the latter "in futuro" depending on a cont:h1aency.
Lottery tickate, not as pbyaical art:l.clea, but a• 1lipa of paper
or memoranda evidence not one but both theae beneficial intereata D
in movable property which are obvioUlly capable of being
tra1111ferred, aaligned or aold and on their tra1111fer, a11iglllll8nt
or aale both theae beneficial interests are made over to the
purchuer for a price. [367 D-F)
· The two entitlements which arise on the purchue of a E
lottery ticket are of a different character, i11&11WCh as the
right to participate arises :In preaenti, that ia to aay it ia a
choate or perfected right in the purchaser on the strenath of
which he can enforce the holding of the draw while the other ia
inchoate right which is to lll&terialiae in future aa and when the
draw takes plsce depending upon his being succeasful in such
draw. Moreover, on the date of the purchase of the ticket, the F
entitlement to participate in the draw can be aaid to have been
ddlivered unto-the-posaession of the purchaaer who would be
enjoyina it from the time he bu purchased the ticket and as such
it would be a chose in posaea1ion while the other would be an
actioneble clsim or a choae-in-action. 'Ihus a transfer of the
right to participate in the draw which tak.e1 plsce on the 1ale of G
a lottery t:l.ckat would be a tranafer of ben•ficial interest in
movable property to the purchaeer and therefore, amounte to
transfer of goods and to that extent it ia n0 transfer of an
a.:t:l.onable claim; to the extent that it involvea a tra1111fer of
the right to clai111 a prize depending on a chance it will be an
a..ignment of an actionable claim. When a purchaaer purchaae1 a
lottery ticket_ he pays consideration (price) nor merely for th• H
348 SUPREME COURT RF.BOR'l:S [l985] SUPP.3 s.c.a.
A i:ight to claim in future a prize in the draw but also for the
right i!!, presenti to participate in the draw, that ie to 1ay not
Olli but two distinct rights are tra111ferred to the purchaeer and
therefore, the contention that the two together coll8titute a
aiDgle right cannot be accepted. [367 G-11; 368 A-DJ
B Joaea Vo c.rter, 8 Q•B• 134 • English Reports Vol. CXV PP•
825-826; Eis>g v. Cozmllre & Anr., 61 CLR 596 at 607 quoted with
approval.
2.5 The analogy of capital issue by a Joint Stock Canpany is
wholly insppropriate. The capital issue by a Joint Stock Coinpany
is governed by the provisions of the Companies Act and Memorandum
c and Articles of Association of the company (whereunder no C01llp8ny
can subscribe to or purchase its own shares since it lllllOunts to
reduction of capital) whereas the issue of lottery tickets would
be governed by a Raff le 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
governins issue of share capital. Moreover, tbe agreement that
D comes into existence as a result of the sale of a lottery ticket
by a promoter to a buyer is in the nsture of a grant conferring
the two rights (the right to participate and the right to claim a
prize if successful) upon such buyer; if this be the true nsture
of the agreement it implies that both the rights come into
existence and are with the promoter no sooner a Raffle Scheme
E together with the Rules governing it (Rules which fix the number
of series to be issued, the number of tickets in esch series, the
manner of holding a draw, the number and the terms on which the
prizes to be awarded, etc. etc.) is sponsored, published and the
tickets are offered for sale and these rights are transferred
upon the sale of the ticket to the purchaser. The mere fact that
F under the Rules the promoter is disabled from participating in
the draw or from claindng a prize in such draw does not mean that
these rights do not come into existence or are not with the
promoter before the actual 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. Such
G disability imposed upon the promoter by the Rules is necessary to
create confidence in the participants about the promoter's
bonafides 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. [369 C-E;
H
370 D-H; 371 A-DJ
l!.ANRAJ V• GOvr. OF TAMlLNADU 349
'
Further tbia right to participate in the draw under a A
lottery ticket remains·a valuable right till the draw takes place
and it is for:tbia reason that licenced agents or wbole-salers or
dealers of such tickets are enabled to effect sales thereof till
the draw actwilly takes place and as such till then the lottery
tickets . constitute their stock-in-trade and therefore a
merchandise. In _other wrds, lottery tickets n0t as physical · B
articles but as slips of paper or meiooranda evidencing the right
to participate in the draw must in a sense be regarded as the
dealer's mercb.andise and therefore, goods, capable of : being
bought or sold in the market. They can alao change from hand to
hand as goods. Therefore; for the purpose of :Imposing the levy. of
· sales-tax lottery tickets comprising the entitlement to a right c
·to participate in a draw will haw to be regarded as "goods"
properly so called. [371 D-ti; 372 A]
Uuf.ted States Y• Hi>e11er, (178) (Second series) Federal
· Reporta 593. at 594 quoted with approval.
D
2.6 It , is true · that this entitlement to a · right to
· parUcipate in the draw is an entitlement to beneficial interest
which is of incorporeal or intangible nature but that cannot
prevent it frum being regarded as goods• If incorporeal right
like copy right·or an intangible thing like electric energy can
be regarded as goods exigible to salea tax there is no reason why E
the enUtlement to a right· to ' particii>ate ·in a draw which· is
beneficial interest in movable property . of incorporeal or
intangible character should not be regarded as 'goods' for the
purpose of levying sales tax~ Lottery tickets which comprise such
enUtlement do constitute the stock-in-trade of every dealer and
therefore bis merchandise which can be .brought and sold in the
market. Lottery tickets comprising such entitlement, therefore F
'lilJuld fall within the definition of "goods" given in the Tamil
Nadu Act and the Bengal Act. [372A; 373 E-G]
"'nn1safooer of Sales Tax, H.P. Y• Madhya Pradesh Electri-
city ~· Jabalpur, (1969] 2 SCR 939 applied •.
G
A.V. He.iyappai:i Y• Co-intoner of ~ Tau, Madras,
Alli. 1969 Madras 284 approved.
•
(The Court applied non-liquet on the alternative submission
that legislaUve competence for ·enacUng the :Impugned Amendments
wuld alao be there under Entry 62 . of List 11 in the Seventh •
Schedule of the Constitution.) H "
350 ~UPRl!ME COURT REPORTS [l985j SUPP.3 s.c.R.
A 3.l The impugned Notification GCl!a. 219 elated March 31, 1984
issued by the State Government of Tamil Nadu is clearly violative
of Article 301 read with Article 304 (a) of the Conatitution.
[374 CJ
3.2 In A.T.B. llebtab llajid and Co. 'a case [1963 J Suppl. 2
B SCR 435, the Supreme Court held thst taxing laws can be restric~
tiona on trsde, cOlllllerce and intercourse, if they hampered free
flow of trade and if they are not what can be termed to be
compensatory tax on regulatory measure; thst sales tax of the
kind under conaideration could not be said to be a measure
regulating any trade or a compenaatory tu levied for the use of
trading facilities; that the sales tax which had the effect of
C discriminating between goods ol: one State and gooda of another
may affect the free flow of trade and it will then offend againat
Article 301 but will be valid only if it comes within the terms
of Article 304(a). Here, the real question is whether the direct
and imnediate 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
D the State of Tamil Nadu as against indigenous goods (Tamil Nadu
Government lottery tickets) when these are sold within the State
from the point of view of the purchsser and this question has to
be considered from the normal business or COlllllercial point of
view and indisputably if the question is so considered the
impugned Notification will have to be regsrded as directly and
E illlllediately hampering free flow of trade, counerce and inter-
course. Discriminatory treatment in the matter of leyying 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, C011111erce and intercourse ia writ large on the face of the
impugned Notification. (378 D-f!; 379 A]
F
Atiabllri Tea Co. Ltd. y, Die State of Asaaa and Ors., [1961]
l SCR 809; A.T.B. llebtab llajid and Co. V• State of lladraa and
Jmr,, [1963] Supp. 2 SCR 435; A. Bajee Abdul Shakoor and Cooq>alQ'
V• State of lladras, [1964] 8 SCR 217; State of lladras Vo 11,L
liataraja l!pdal1ar, [1968] 3 SCR 829; QmmWih lla1du & Sona Vo
G State of Tamil lllldu & Anr., 38 STC 565 followed.
(Per Sabyaaacbi llotbarji, J.) (Concurring)
l. l Both under the relevant provisions of the relevant
Tamil Nadu Act and the West Bengal Act, in order to attract the
li leyy of sales-tax, there D11St be aale of goods i.e. transfer of
property. In other words, both these Acts insist tranafer of
H.ANRAJ v. GOVT. OF TAMILNADU 351
property in goods. Article 366(12) of the Constitution gives an A
incluaive definition of "goods" indicating thereby goods"
incJ.udea all materials, cOldllOdities and articles. The·refore,
there 11111St be tranafer of property in the goods for a price, the
concept has the aame meaning which it has undu the Sale of Goods
Act, 1930. [379 E]
B
1.2 "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 it cannot be said that such a
grant/right, nsmely, the right to participate in the draw, in the
facts and circumstances of the case, existed in the grantor.
[379 G-1!; 380 A] c
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 D
of the ticket, there is no transfer of the same property namely
the property which existed in the grantor nsmely 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, the issue whether it is transfer of the E
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 is a point of some complex! ty and there is no easy
solution. However, the State 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. The right to participate in the F
draw under a lottery ticket · remains a valuable right till the
draw takes place and it is for this reason that licence agents or
whole-salers 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 G
be regarded as dealer's merchandise and therefore goods which are
capable of being bought or so~ in the market. [380 D-li; 381 A-DJ
1.3 The analogy of capital issue by Joint Stock Company is
not appropriate. [381 A]
ORIGINAL JURISDICTION : Writ Petitions Nos. 435 and 436 of .H
1985.
r~-
352 SUPRil!E COURT REPORTS [1985] SUl'P.3 s.c.R.
A (Under Article 32 of the Constitution of India)
AND
Civil Appeal No. 4099 (NT) of 1984.
B From the Judgment and Order dated 14;8.1984 of the.Calcutta
High Court in Civil Rule No. 6431 (W) of 1984~ .
.. ~-- -
Soll J. Sorabjee, K. Srinivasan, N.B.B. Raju and Vineet
Kulliar for the Petitioners in W.P. No. 435 of 1985.
y.s. Chitale, Vineet Kumar and K. Srinivasan for the
c Petitioners in w.P. No. 436 of 1985.
K. Parasaran, Attorney General and A.v. Rangam for the
Respondent in W.P. Nos. 435-36 of 1985.
K.K•. Venugopal,. Vimal Dave, Miss. Kailash Mehta and Mrs. -
Neel.am Kalsi for the Appellants in C.A •. No. 4099 of 1984.
D
. N. Gooptu and H.K. Puri for the Respondent in C.A. No.
4099 of 1984.
The following Judgment~ were delivered
E TllLZAPUl!XAR, J • These Writ Petitions and the Civil Appeal
raise a COlllllOn question of law, namely, whether sales tax can be
levied by a State Legislature on the sale.of the Lottery Tickets
in the concerned State?-
The facts giving rise to the aforesaid question lie in a
"-F 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 tiiiie
by making -suitable amendments in the Bengal Finance (Sales Tax).
G Act, 1941 with effect .from May r, 1984.
Indisputably the subject of "Lotteries" organised either by
the _Government of Iridia 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
H running of lotteries could be done by-the Government of vario\is
H.ANRAJ V• GOVT. OF TAMILNADU [TULZAPURKAR, J. J 353
States only under Article 258(1) of the Constitution on A
entrustment of that function by the Union to the concerned State.
Accordingly at the instance of the Tamil Nadu Government which
proposed to organise its own State Lottery the Central Government
entrusted that function to the State Government by means of a
Presidential Order dated October 27 ,1971, the operative part
whereof ran thus: B
"Now, therefore, the President is pleased to permit
the Government of Tamil Nadu to conduct a sj:ate
lottery, subject to the condition that the tickets of
the lottery shall not be sold .in any other State
without the permission of the Government of that C
State.
The President is further pleased to entrust the
Government of Tamil Nadu under clause ( 1) of Article
258 of the Constitution the executive power of the
Union in respect of lotteries organised by that D'
GoVernment. "
Pursusnt to the aforesaid Presidential Order the Government of
Tamil Nadu organised a State Lottery by sponsoring a Raffle
Scheme and framing appropriate Rules in that behalf. The State
Government was also desirous ·of levying sales tax on the sale of E
the lottery tickets by placing the incidence thereof on every
dealer selling such tickets within the State and for that purpose
by a Notification G.o,p, No. 77 dated January 28, 1984 issued
under s. 59 of the Tamil Nadu General Sales Tax Act, 1959 the
State Government inserted an Entry 163 in the First Schedule to
the Act wherebY lottery tickets were brought within the purview
of the charge and tax at the rate of 20% was levied on the sale F
of such tickets "at the point 0£ first sale in the State". This
Notification was later followed by a regular legislative
amendment made in the Act as required by o.59(2). Presumably
this was done in the exercise of its own indeFendent taxing power
under Entry 54 of List 11 in the Seventh Schedule to the Consti-
tution. It seems that under the Raffle Scheme so pr01111lgated the G
first sale of lottery tickets issued thereunder was by the State
Government of Tamil Nadu to various licensed agents, whole
salers, 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
GOMs No. 219 on March 31, 1984 bringing into force certain
arrangement whereunder while retaining the sale price of the H
354 SUPRE21E COURT REPORTS [1985] SUPP.3 s.c.a.
A ticket at its face value the tax was not passed on to the
licenced dealer or to purchaser; in other words effectively
exemption from payment of sales tax was granted to the purchaser.
Shri a. Anraj the common petitioner in both the writ petitions,
who has been carrying on business in the State of Tamilnadu as a
dealer in lottery tickets issued by the l<oyal Government of
B 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 Notifica-
tion GOMs 219 dated 31.3.1984.
Presumably on the entrustment of the function of conducting
a State Lottery by the Union Government under a similar Presiden-
C tial 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 where-
unc!er by making appropriate amendments (by way of additions to
sections 5(l)(aa), 5(1)(dd), 5(2)(a)(vb) and 5(2)(v)(iva) of the
D Bengal Finance (Sales Tax) Act 1941 sales tax at the rate of 20%
was levied on the taxable turnover of every dealer in regard to
the sale of lottery tickets. By a Notification No. 1020 FT dated
March 29, 1984 the levy imposed under the aforesaid amendments
was brought into force with effect from May 1, 1984. By a writ
petition filed in the Calcutta High Court the appellants (being
E three petitioners who carry on business in the State of West
Bengal as agents and stockists of various lotteries organised by
different States including the State of West Bengal) challenged
the validity of the aforesaid amendments made in the Bengal
Finance (Sales Tax) Act, 1941 whereunder sales tax has been
levied on the sale of lottery tickets substantially on the ground
F that a lottery ticket when sold represented an actionable claim
and not "goods" and such a transaction being merely a sale of a
chance to win a prize in the draw was not exigible to sales tax
and, therefore, the amendments made were beyond the legislative
competence of the State Legislature, as Entry 54 of the List 11
in the Seventh Schedule authorises legislation levying sales tax
G only on the sale or purchase of "goods"; the matter ultimately
went before a Division Bench of that Court who by its judgment
and order dated August 14, 1984 dismissed the writ petition
upholding there constitutional validity of the amendments in
question as also the levy imposed thereunder. In substance the
High Court came to the conclusion that lottery tickets were not
a actionable claims but 'goods' within the definition of that
R.ANRAJ v. GOVT. OF TAMILNADU [TULZAPURKAR, J.] 355
expression given in the· Bengal Finance (Sales Tax) Act, 1941 and,
A
therefore, the State Legislature was con.petent under Entry 54 of
List II to enact the concerned amendments levying sales tax on
the sale of lottery tickets. Renee the appeal.
Counsel for the dealers have challenged the levy of sales
tax. on the sale of lottery tickets imposed under both the
B
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 LegJ.slatures. Counsel pointed out
that under the charging provision contained in both the Acts
(s.3 of the Tamil Nadu Act 1959 and s.4 of the Bengal ·Act 1941)
the taxable event is the sale of goods (here lottery tickets) and
c
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 Entry 54 of List II enables legislation
D
imposing a tax, inter alia, on "sale of goods" that i t 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 Ganon lluokerley's case), [1959] S.C.R. 379 at 416 "goods
under sec.2(7) thereof comprises within its scope every kind of
movable property but specifically excludes actionable claim, that
E
the essence of lottery is a chance for a prize 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 lI. Alternatively, counsel contended
that a lottery ticket is an actionable claim as defined in sec. 3
of Transfer of Property Act or a chose-in-action known to English
law, the ticket itself being merely a slip of paper or memorandum
F
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 54 of List II. So far as the Madras /;ct is
concerned Counsel for the writ petitioners raised a further
contention that the State Government's Notification GOMa No. 219
dated March 31, 1984 was discriminatory and violative of Art· 14
G
and Art. 304(a) of the Constitution inasmuch as thereunder the
burden of sales-tax, sur-charge and additional sur-charge is
prohibited to be passed on to the purchaser of Tamil Nadu Lottery
Tickets while there is no such similar treatment given to the
Lottery Tickets of other States which are being sold in the State
of Tamil Nadu thereby putting the sale of the lottery tickets at
,.
a serious disadpantage. R
356 SUPREME COURT REPORTS [1985) SUPP.3 s.c.R.
A On the other hand the learned Attorney General appearing for
the State of Tamil Nadu and counsel for the State of West Bengal
strongly refuted the validity of the grounds on which the levy of
sales-tax on the sale of Lottery Tickets was challenged by
counsel for the dealers. For deciding the legislative competence
of the impugned Amendments levying sales-tax of Lottery Tickets,
B apart from Entry 54 of List II ('taxes on the sale or purchas~ of
goods') reliance was also placed on Entry 62 of List II ('Taxes
on •••• betting and gambling') and it was urged that if the
dealers' contention were correct that lottery is a chance and
when a lottery ticket is sold it is a chance that is sold, then
the tax in the present case would be a tax on betting arid
gambling and the same has to be levied in the case of lottery
C 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
D 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 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
B 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' capa~le of being possessed and
bought or sold. As regards the exemption granted by the Tamil
Nsdu Government under Notification No. GOMs. 219 dated March 31,
F 1984 it was contended that the circumstance that the Tamil Nadu
Government decided not to pass on the sales-tax to the purchaser
cannot invalidate the same as falling under Art.14 or Article 304
inas111.1ch as it is open to a dealer not 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
G the sales-tax to the purchaser of their Lottery tickets.
As regards Entry 62 of List II on which the reliance was
placed by 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 tw~ reasons.
H First, if the tax was to be levied on betting and gambling the
l!.ANRAJ V• GOVT. OF TAMILNADU [TULZAPURKAR, J. j 357
charging event ought to have been the organising of the lottery A
and the levy should have been imposed on the two State
Governments for having organised that activity by undertaking the
conduct of the lotteries and not on any dealer selling lottery
tickets as is the case here; and secondly, Entry 40 of List I is
'Lotteries organised by the Government of India or the.Government
of a State' while Entry 34 of List II ls 'betting and gambling' B
and it is well settled that the latter does not include lotteries
organised by the Government of India or the Govermnent of the
State which topic is specifically dealt with by the former (vide
H. Anraj v. State of llabarashtta, [1984] 2 s.c.c. 299, and
therefore, the expression 'betting and gambling' in Entry 62 of
the List II must be given the same meaning, that is, it excludes C
State Lotteries and therefore under Entry 62 there cannot be any
power to levy tax on State Lotteries and such construction of the
relevant Entries is in consonance with the constitutional scheme
as explained by this Court in l'erala State IUectrlcil:y Board v.
IndiJm Al1ninfm. Company, [1976] 1 s.c.R. 552. In other words
legislative competence if at all would be under Entry 54 of List D
II and unless the sale of a lottery ticket involves a sale of
goods the levy would be incompetent being outside that Entry.
Elaborating the main contention of lack of legislative
competence under Entry 54 of List II, counsel for the dealers
have urged that since that Entry enables legislation levying tax E
on 'sale of goods' it is necessary to dppreciate 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 F
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 served before sale or
under the contract of sale;"
G
"2.(n) 'Sale' with all its granmatical 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 or
another in the course of business for cash deferred
payment or other valuable considerations;" (Other
clauses give extended meanings which are not H
material).
358 SUPWlME COURT REPOKTS [1985] SUPP.3 s.c.R.
A Similarly the expressions 'goods' and 'sale' are defined in
s.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;"
B
"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 s.2(7) of the Sale of Goods Act,
1930 and so far as is material it means "every kind of movable
c property other than actionable claims and money;" and this
definition read with s.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 -
v 1
(;oods' includes all materials, commodities and
articles j •·
and Article 366(29A) inserted by the Forty-sixth Constitutional
Amendment Act, gives an extended meaning to the concept of 'sale
E 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 csse and only clause (a) thereof is
material which runs thus -
"(29A) tax on the sale or purchase of goods includes -
F
(a) a tax on the transfer, otherwise than in pursuance
of a contract, of property in any goods for cssh,
deferred payment or other valuable consideration;"
G
On a proper reading of the aforesaid definitions counsel
urged that two significant aspects clearly emerge therefrom;
first, that sans the extended meaning accorded to the expression
'sale of goods' (with which I am not concerned in the instant
csse), the tTI.\i! concept of 'sale of goods' is that there must be
a transfer of property in the goods for a price, that is to say
H
the concept has the same meaning which it has under the Sale of
H,ANRAJ v. GOVT. OF TAMILNADU [TULZAPURKAR, J.) 359
Goods Act 1930 and secondly, the expression 'goods' covers within
its scope every kind of movable property but actionable claims A
are specifically excluded from its purview.
For the purpose of bringing out the real meaning and concept
of a 'lottery' and 'lottery ticket' counsel relied upon the
dictionary meanings of those expressions as also on certain
decided cases. ln Webster's Dictionary 'lottery' is defined as "a B
distribution of prizes by lot or chance"• In the Oxford New
Engltsh Dictionary 'lottery' is defined as "an arrangement for
the distribution of prizes by chance among persons purchasing
tickets". ln ArchibolJ' s Criminal Pleadings 7th Edition (p.1345)
'lottery' has been defined as "the distribution of prizes by lot
or chance without the use of• any skill." In lllack's Law c
Dictionary (5th Edition p.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 D
determined predominantly by chance." (Based on State v.
Wassick, w.va.), 191,s.E. 2nd 283,288.
ln 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 E
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
nlUllbered slips or lots, representing prizes or blanks, F
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 G
gambling." (Very passage has been annotated in 'Words
and Phrases' Permanent Edition, Vol. 25 at p.446)
In Corpus Juris Secundum, Vol. 54 at page 845 the three
essential elements of a lottery are stated thus:
H
360 SUPREME COURT REPORTS [1985] SUPP.3 s.c.R.
A ''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,
B 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:
C "In order to comprise a lottery, these three elements
or ingredients (mentioned above) must be present;
chance alone will not do so, nor will chance even when
coupled with consideration. hor is the combination of
consideration and prize sufficient alone."
Reliance was also placed on three English decisions, namely
D Bartlett v. Pazker and Ors., (1912) 2 K.B. 497, Ball v.
McWillimn, (85) Law Times Reports 239 and Kerslake v. Knight,
133 Law Times Reports 606, to show that in essence a lottery
involves a sale of a chance to win a prize for consideration. It
is unnecessary to discuss in detail the facts in each of the
three decisions but it will suffice to say that in each one of
E these cases the occ.,sion to discuss the essence of a lottery
arose in the context of the penal provisions contained in s.41 of
the Lotteries Act 1823 and the question that arose for decision
was whether the particular scheme of distribution of prizes
sponsored by the concerned accused in three cases (each being a
different scheme) constituted a lottery or not and whether a
F conviction under the said s.41 was or could be properly recorded
against them and was answered in the affirmative.
Reference was also made to a Full Bench decision of Madras
liigh Court in Sesba Ayyar v. Krisban Ayyar,
A.I.R. 1936 Madras
225, where in the context of the question whether a Kuri Chit
G Fund was a lottery or not the Full Bench has emphasised.the same
three essential elements that go to constitute a lottery, namely,
(a) a prize or some advantage in the nature of a prize, (b)
distribution thereof by chance, and (c) consideration paid or
promised for purchasing the chance.
H Coming to the lottery ticket counsel pointed out that the
dictionary meaning of the word 'ticket' is "a printed card or a
H.ANRAJ V• GOVT. OF TAMILNADU (TULZAPURKAR, J •.J 361
piece of paper that gives a person a specific right, as to attend
a theatre, ride on a train, claim of purchase, etc." (see A
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 Vo Keller, 96 Cal. Reptr. 241,249,
18 C.Ao3d 836. B
Further counsel pointed out how the term 'ticket' in the context
of lottery has been explained in the same volume 25A at psge 491,
namely, - "The term ticket', when speaking of the sale of lottery
tickets is equivalent to chances." Saloman Vo State, 27 Ala.
26-30. c
Counsel also strongly relied upon Justice Cornish's
observation in the Full Bench decision of Madras High Court in
Sesha Ayyar V• Krisban Ayyar (supra) to the effect, "Tickets of
course are only the tokens of the chance purchased, and it is the
purchase of this chance w!)ich is the essence of a lottery." D
Relying upon the aforesaid material counsel conte'lded that a
lottery ticket will have to be regarded merely as a slip of paper
or memorandum evidencing the right oi 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 E
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 t'l.cket is nothing more than a
sale of a chaace to win a prize and no transaction of sale of
movable property takes place or is involved in the sale of a F
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 G
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 . counsel for
the dealers ma.de an alternative submission. It was urged that
l!
362 SUPREME COURT REPORTS [1985] SUPP.3 s.c.R.
assuming without admitting that lottery tickets are regarded as a
A
kind of a movable property or some kind of merchandise they would
be so only in a limited sense but in pith and substance they are
'actionable claims' which have been expressly excluded from the
definition of 'goods' • In this behalf reliance was placed by
counsel on the definition of an 'actionable claim' given in s.3
of the Transfer of Property Act 1882 and the following passages
B
appearing the Mulla's T.P. Act (Sixth Edition) under the heading
'Actionable Claims' at pages 804, 805:
"In English law movable property was said to be either
in possession and enjoyment and therefore a chose in
possession; or out of possession, but realizable by
c action, and therefore a chose in action ••••••••• it (the
term chose in action) is also used to denote a document
evidencing a right or title." (like a ticket here)
(p.804)
"Actionable claims, therefore, include claims
recognised by the Courts as affording grounds for
D
relief either -
(l) as to unsecured debts or
(2) as to beneficial interest in movable property not
in possession, actual or constructive - whether present
E
or future, conditional or contingent." (p.805)
Reliance was also placed upon the decision in llnited States v.
lluell.er, 178 (2d series) Federal Reports 593 at 594, where the
following passage occurs:
"Conceding, without deciding, that lottery tickets are
F
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. 25-A at page 491).
G
Similarly, counsel relied upon an English decision in Jones
v. Carter, 8 Q.B. 134 • ~nglish Reports Vol. CXV pp.825-826 where
Lord Deman, 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
H
Edition, Volume· I at page 460 under the heading 'chose in
h.AMJl.l v. GOV1. GF TAMILMDL [1LLZAFUF.KAR, J.] 363
action'). It was submitted that a lottery ticket possesses the A
same character and ~ould, therefore, be a chose-in-action.
Similarly, it was pointed out that in King v. Connare &Anr•, 61
C.L.R. 596 at 6C7, Latha!li, G.J., also took· the view that when a
person buys a lottery ticket from the conductor of the lottery
there is an assi6runent of chose in action.
In view of 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 C
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 true meaning of lottery D
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 sre present the scheme or the transaction E
would not amount to a lottery. In fact the three English
decisions dealt with the question as to whether the concerned
accused were or could be properly convicted of a criminal offence
and obviously the Court could not answer that question in the
affirmative unless in each of the concerned schemes all the three
essential elements were present. In the Madras case the essen-
tials of a lottery came to be considered in the context of the F
question whether a Kuri Chit Fund was a lottery or not. In the
case, before us the issue is not whether the raffle-schemes
undertaken by the two State Governments are lotteries or not. If
that were the issue the material relied upon would have been
quite useful. Admittedly the raffle schemes are lotteries which
involve gaming. The issue before us is whether a sale of a G
lottery ticket, which unquestionably involves the sale of a
chance to win a prize, is something more and comprises transfer
of property in goods and therefore a sale of goods or not, so
that a tax could be levied thereon under Entry 54 of List II and
in order to decide this question the true concepts of 'goods 1 ,
'sale', 'movable property' and 'immovable property' would be most
material. H
364 SUPREME COURT REPORTS [1985] SUPP.3 s.c.R.
A Sec.2(7) of the Sale of Goods Act defines 'goods' as meaning
"every kind of m:ivable property .,ther than actionable claims and
money". Clearly, the expression 'movable property' is used in
contradistinctions 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,,
B growing crops or grass and is, therefore not of llllch assistance;
but s.3(26) of the General Clauses Act, 1897 defines 'immovable
property' by stating that it "shall include land, benefit to
arise out of land, and things attached to the earth, or perma-
nently fastened to anything attached to the earth", while
'movable property' is defined in s.3(36) thus:
c "Movable property" shall mean property of every
description, except immovable property.
It is thus clear that when s.2(7) of the Sale of Goods Act
defines 'goods' as meaning 'every kind of m:ivable property other
than actionable claims and money', the expression 'm:ivable
property' occurring therein llllSt mean property of every
D 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 m:ivable property and
as such these will fall within the expression "goods". Of
course, questions whether these tickets constitute "goods"
properly so called or are slips of paper or mem:iranda merely
E
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 cartnot be disputed
that as opposed to immovable property these tickets would be
m:ivable property and would normally qualify to fall within the
expression "goods".
F
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 s.3 of the Transfer of Property
Act which runs thus:
"Actionable claim" means a claim to any debt, other
than a debt secured by m:irtgage of immovable property
or by hypothecation or pledge of m:ivable property, or
to any beneficial interest in m:ivable property not in
the posseasion, either actual or constructive, of the
claimant, which the Civil Courts recognise as affording
H grounds for relief, whether such debt or beneficial
interest .be existent, accruing, conditional or
contingent.
H.ANHAJ V• oovr. OF TAMILNADU [TULZAPUIU<Ai., J. J 365
This definition as analysed in Mulla's Transfer of Property Act A
(at page 805 of the 6th J;ciition) comprises two types of claims -
(a) a claim to unsecured debts and (b) a claim to beneficial
interest in movable property not in the possession, actual or
constructive whether present or future, conditional or
contingent. We would be concerned not with (a) but with (b) in
this case, and reading (b) it is clear that if, the beneficial li
interest in movable property is not in possession of the claimant
it will be an actionable claim but if it is in his possession or
enjoyment it will not be actionable claim but a chose in
possession. Keeping the aforesaid aspects in view we proceed to
consider the questions whether lottery tickets are goods properly
so called or whether these are actionable claims? c
Counsel for the dealers contended that a lottery ticket
would stand in the same category as a steamship-ticket or a
railway-ticket or a railway cloak-room ticket or a cinema ticket,
all being purely contractual documents; in other words it was
urged that delivery of a lottery ticket evidencing the terms and D
conditions of the offer of a prize at the draw, on its acceptance
by the purchaser by payment of price results 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 E
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 F
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, G
they either create rights, or transfer them or
extinguish them· Those which create rights are them-
selves divisible into two sub-classes, distinguishable
as 'contracts' and 'grants'. A contract is an
agreement which creates an obligation or a right in
personam between the parties to it. A grant is iln
agreement which creates a right of any other descrip- H
tion; examples being grants of leases, easements,
366 SUPREJ.lE COURT REPORTS [1985] SUPP.3 s.c.R.
A charges, patents, franchises, licences and so forth.
An agreeILent which transfers a right may be terned
generically an assigrurient. One which extinguishes a
right is a release, discharge, or surrender •
......................
B
It often happens that an agreement is of a mixed
nature, and so falls within t\IJO or n:ore of these
classes at the sanie time. Ihus 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."
c
The delivery of a lottery ticket issued under the Rules governing
the Raff le Schemes in the instant case to a purchaser t~ereof is
obviously not a mere contract creating an obligation or right in
personam bet~een parties to it but as explained hereafter would
be in the nature of a 5rant.
D Dealing with agreellients which are in the nature of grants it
is well settled that rights and benefits arising thereunder,
unless of a personal nature, partake of the character of
personalty as opposed to realty and therefore, ffiovable property,
capable of bein& assigned or transferred. As opposed to personal
rights, like life, liberty or reputation these would be proprie-
E t'ory rights and benefits and hence includible in property accord-
ing to Sabtond's Jurisprudence (see para 108 at pabe 412 of 12th
Edition under the heading 'Proprietor) riE:,hts - Don:J.nillffi and
status'). Counsel for the dealers, however, urbed that this Court
has taken the view that benefits arising under a contract are not
proprietary ri~hts and therefore, do not constitute property and
F in this behalf reliance was placed on two decisions, namely,
Swami Motor Transport (F) Ltd. awl Anr. v. Sri Saokaraswamiga1
Mutt awl Anr., [1963] Suppl. 1 S.C.R. 282 at 306-307 and M/s.
Anwar Khan Mehboob & Co. V• State of ~;adhya Fradesh and Ors.,
[1966) 2 s.c.R. 40 at 49-52. In the former case the Court was
concerned with the question whether the option to purchase the
G site conferred upon a tenant havint his super-structure on the
land under section 9 of the hadras City Tenants' Protection Act
1921 as amended in 1955 and again in 1960 amounted to interest or
right in property and the Court was of the view that even if such
an option were conferred under .a contract it would not be a right
in property and therefore, the fact that such a right stemmed
H from a statute could not obviously expand its content or make it
anv-the-less a non-proprietory right; the Court held that a•
H.ANRAJ v. GOVT. OF TAMILNADU ['fULZAPUfil<AR, J, J 367
statutory right to apply for the purchase of the land was not a A
right of property. In the latter case the Court took the view
that a right to go the forest area and collect tendu leaves under
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 right under a statute or contr;act which ll
created merely obligations or rights in personam and not with
agreement in 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 c
dealers fairly conceded the positiort that where under a contract,
a party on the performance of his part of the contract is
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 D
the sale of lottery tickets, similar to the schemes sponsored by
each of the two State in this case, every participant is required
to purchase a lottery ticket by paying a price therefor (the face
value of the tick.et) 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 there of 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 'in
presenti', the latter 'in futuro' depending on a contingency.
Lottery tickets, not as physical arti~les, but as slips of paper
or memoranda evidence not one but both these beneficial interests F
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 to the
purchaser for a price. Counsel for the dealers sought to contend
that the concept of a lottery cannot be sub-divided in two parts,
namely, a right to participate and a right to receive the prize G
but the two together constitute one single right. It is not
possible to accept this contention for the simple reason that
the two entitlements which ariae on the purchase of a lottery
ticket are of a different character, inasmuch aa the right to
participate arises in presenti, that is to say it is a choate or
perfected right in the purchaser on the strength of which he can
enforce the holding of the draw while the other is inchoate right I!
368 SUPREME COURT REPORTS [1985] SUPP.3 s.c.R.
A which is to materialise 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 unto
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
H in possession while the other would be an actionable claim or a
chose in action as has been held in Jones v. Carter (supra) and
IC:l.og v. Conoare (supra) 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 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
C 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
u a prize in the draw but also for the right in presenti to
participate in the draw will be clear from certain passages
based on decided cases annotated in Words and Phrases, Permanent
~dition, Vol. 25A, which we would like to extract:
"'Lottery 1 , in accordance with public usage, is scheme
or plan for distribution of prizes by chance among
those paying or agreeing to pay consideration for right
of parti.cipation." (City of Wink v. Griffith Anw1•"D"'nt
Co; 100 ~.w. 2d 695, 698,699,700,701, 129 Tex.40.) (at
page 460.)
F "A 'lottery' or scheme in the nature of a lottery is a
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).
G "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." (llew
Orleans v. Col:Uns, 27 So. 532, 536, 52 La. Ann, 973)
(at p. 468).
H
H.ANRAJ v. GOvt. OF TAMILNADU lTULZAPIJRKAK, J. j 369
"Three things must concur to establish a thing as a A
'lottery': A prize or prizes; the award or distribu-
tion 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 partid-
pating." (llol!b & l!owley United v. State, Tex.Civ.
Appl., 127 S.W. 2d 221,222) (at P· 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
cunstitute a single right. c
Counsel for the dealers sought to raise a further contention
that the issue of a lottery ticket, like the issue of shares by a
joint stock company, creates for the first time in the buyer, the
right to participate in the draw, that is to say, the right to
have his number included amongst the participating numbers and D
therefore, there is no transfer involved in the issue of a
lottery ticket; in other words just as a company before it
indulges in capital issue does not hold any of its shares but
only after they are issued they come to exist only in the hands
of shareholders on their subscribing to them and on allotment to
them, so in the case of a lottery the promoter sponsoring it does
not have the right to participate nor the right to claim a prize
in a draw and that these right come into existence for the ·first
time in the participant when he purchases the ticket and
therefore no transfer of any of the s_aid rights is involved in
the issue of a lottery ticket. And in this behalf reliance was
placed on the following passage occurring at page 553 of Vol. I,
7th lldition of Kanga & Palkhivala' s Law and Practice of Income F
Tax under the heading "Amalgamation of Companies":
"In a case where company A amalgamates with and merges
into company B, and the shareholders of company A are
allotted shares in company B in their own right and not
as nominees of company A, a question arises as to G
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 (s.2(47)). It is clear that such amalgamation
ti
370 SUPREME COURT REPORTS [1985] SUPP.3 S.C.R.
A
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 uf shares by
company A cannot be regarded as a transfer by its
shareholders. Nor is there any transfer by company B
ll
when it allotes its share capital to the shareholde!s
of company A. The allotment of shares by a company
cannot be regarded as a transfer of property b; that
company. As Lord Greene MR observed in Re · V G M
lloldiugs Ltd., [1942] 1 ALL fill 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 ~ights in
c possession, and, until the share is issued, no such
person exists. Putting it in a nutshell, the difference
bP.tween 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."
u
The contention so put forward is in my vie• without any
substance. In the first place the capttal issue by a joint stock
company is governed by the provisions of the Companies Act and
Memorandum and Aiticles of Association of the company (whereunder
no company can subscribe to or purchase its own shares since it
amouts to reduction of capital) whereas the issue of lottery
E
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 ~s wholly
inappropriate. Secondly, the learned authors were dealing with
F
the case of amalgamation of two companies in the context of
'capital gains tax', while the learned Law Lord, as the Reporc
of the case shows, was concerned with consttuing the meaning of
the word "purchase" occurring on s.45 of the Companies Act, 1929
and held that acquisition of shares by subscription or allotment
was not a purchase within the meaning of that section; in other
G
words both the cases are ifi different ~ontext altogether.
Moreover, as discussed earlier the agreement that comes into
existence as a result of the sale of a lottery tick.et 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 if successful) upon such buyer; if tais be the true nature
H
of the agreement it implies that both the rights come into
H.ANRAJ V• GOvr. OF TAMILNADU (TULZAPURKAR, J.] 371
existence and are with the promoter no sooner a Raffle Scheme
together with the Rules governing it (Rules which fix the munber A
of series to be issued, the number of tickets in each series, the
manner of holding a draw, the number and the terms on which the
prizes to be awarded, etc. etc•) is sponsored, published and the
tickets are offered for sale and Lhese rights are transferred upon
the sale of the ticket to the purchaser. The mere fact that under
the rules the promoter is disabled from participating in the draw B
or from claiming a prize in such draw does not me:an that these
rights :lo not come into existence or are not with the promoter
before the actual sale of the tickets to the buyer nor does it
mean that these rights come into existence time only upon the
sale of the ticket to the buyer as urged by co>msel for the
dealers. Such disability imposed upon the promoter by the Rules C
is necessary to create confidence in the participants about the
promoter's bonafides 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, therfore, rejected. D
Another fact 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 high-lighted which has a significant bearing on the question
whether the lottery ticket would be goods or not. It cannot be E
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 rea&on that licence agents or
whole-salers 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 F
physical articles but as slips of paper or memoranda evidencing
the right to participate ln the draw most 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 (supra) on which
counsel for dealers relied the Court while emphasising the aspect G
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
H
372 SUPREl'.E ~OURT REPORTS [1985] SuPP.3 $.C.R.
A lottery tickets comprising the entitlement to a right of
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
B incorporeal or intangible nature but that cannot prevent it from
being regarded as goods. In Commissioner of.Sales Tax, M.P. v.
Madhya Pradesh Electricity Board, Jabalpur, [1969] 2 S.C.R. 939,
the question that arose for determination was whether electricity
or electric energy supplied and distributed by the M.P.
Electricity Board to various consumers wa11 'goods' within the
meaning of C.P. & Bearer Sales Tax Act, 1947 and the Madhya
c Pradesh General Sales Tax Act 1959 and this Court held that the
definition of 'goods' "was very wide and included all kinds of
movable property" and the term 'movable property' when considered
with reference to 'goods' as defined for the purposes of sales
tax could not be taken in a narrow sense and that electric energy
was covered by the definition of goods' in the two Acts. At page
945 of the Report this Court observed thus:
D
"What was essentially to be seen is whether electric
energy is 'goods' within the meaning of relevant
provisions of the two Acts. The definition in terms is
very wide according to which 'goods' u.eans all kinds
of movable property •••••• The term 'movable property'
E when considered with reference to 'goods' as defined
for the purposes of sales tax 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 piece of wood or a book, it cannot cease
to be movable property when it has all the attributes
F of such property. It is needless to respect that it is
capable of abstraction, consumption and use which, if
done dishonestly would attract punishment under s.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 ••••
G •• If there can be sale and purchase of electric energy
like any other movable object we see no difficulty in
holding th.It electric energy was intended to be
covered by the definition of 'goods' i~ the two Acts.
If that had not been the case there was no necessity
of specifically exempting sale of electric energy from
H the payment ot' sales tax by making a provision for it
in the Schedules to the two Acts."
H.ANRAJ V• GOVT. OF TAMILNADU (TULZAPURKAR, J.] 373
Similarly in A. V. lleiyappan v. Cognl ssioner of Coamercial
Taxes, Madras, A.I.R. 1969 Madras 284, the owner or producer of a A
film instead of exhibiting the film himself, by entering into an
agreement 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 a~ose whether the
transaction was one of lease or sale of that right and no
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 no exigible to
sale 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 s.2(j) of the Madras General c
Sales Tax Act, 1959. After referring to the concept of copy-right
both under the English as well as Indian law the Court observed
thus:
"Copy-right is referred to (in Salmond's jurisprudence,
11th edition, p. 462) as an immaterial form of property D
recognised by law, being the product of human skill and
labour or of a man's brains. In all the English text
books and which ,it is unnecessary. to refer at length,
copyright has been regarded as incorporeal movable
property and that view has been adopted in our country
as well. It would ,be sufficient to refer to Savitri E
Devi V• llwarka Prasad, A.I.R. 1939 All 305."
If incorporeal right like copy right 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 movable
property of incorporeal or intangible character should not be F
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 G
Bengal Act.
In the light of the aforesaid discussion my conclusions are
that lottery tickets to the extent that they comprise the
entitlement to participate in the draw are "goods" properly so
called, squarely falling within the definition of that expression
H
374 SUPl.@lli COURT REPORTS [1985] SUPP.3 s.c.R.
as given in the Tamil Nadu Act, 1959 and the Bengal Act, 1941,
A that to that extent they are not actionable claims and that in
every sale thereof a transfer of property in 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
IS List II in the Seventh Schedule aud therefore, we think it
unnecessary to go into the validity of the alternative sul:mission
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
c of the dealers, we shall now proceed to deal with the challenge
to the exemption Notification GOMs. No. 219 dated March 31, 1984
issued by the State Government of Tamil Nadu which is alleged to
be violative of Articles 14, 19(l)(g) and 301 read with 304(a) of
the Constitution. Such challenge has been raised only by the
petitioners in writ petition Nos. 435 and 436 of 1985. Under the
impugned Amendment made in the Tamil Nadu Act by insertion of
D Entry 163 in the First Schedule to the Act lottery tickets
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 sur-charge 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
F 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
licenaed dealer or to the purchaser. The Notification runs thllJ':
G nNANCE (RAFFLE) DEPARTMENT
G.Q.Ms. No. 219 Dated: 31.3.1984
Panguni 18, Ruthrodh-
kari, Thiruvalluver
Andu 2015
H.M'RAJ v. GOVT. OF TAMILNADU [TULZliPURKAR, J.] 375
RE. AD G 0 P No. 77 Dt. 28.1.1984. A
"In the G.O. read above, the Government have ordered
the leV) of Sales-tax at 20% single point on the sale
0
of lottery tickets at the point of first sale in the
State. Consequent on this levy of tax, sale price of
tickets has increased over and 8.bove their face value B
to the extent of sales-tax surcharge and additional,.
surcharge payable on tbe sales. The position was
reviewed by the Government with a view to reducing the
burden of tax on TanJ.l ~adu Raffles which is not being
passed on to the buyers in addition to the face value.
1he Gove=ent have decided that the 1amil 1'adu Raffle C
Tickets shall continue to be sold at their face value
even after the levy of tax and that sale price (fa~e
value) shall include sales tax, sur-charge and
additional surcharge as applicable.
2. The Government accordingly direct that all the D
Tamil ~adu Raffle tickets (whether ordinary or bumper
draws) shall be sold at their respective face values
only which will include sales-tax, surcharge and addi-
tional surcharge as applicable and that no agent or
sellers of the Raffle tickets shall collect the tax
etc., over the face value or increase the face value E
on any account.
3. The above orders shall take effect from 1.4.1984.
4. The procedure for accounting will issue separately
in consultation with the Commissioner or Raffles and
Commissioner of Commercial Taxes. F
5. The Commissioner of Raffle is requested to• give
widt publicity on these orders immediately.
(By Order of the Governor)
G
C. Ramachandran
Conm:dssioner and Secretary to Govt."
According to the petitioners the arrangement under the'
Notification is that the Raff le 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 H
376 SUPREME COURT REPORTS [1985] SUPP.3 s.c.R.
A 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
Government and sold within the State of Tamil Nadu are subject to
tax. The net result is that sale of lottery tickets of other
B 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 be available to the purchaser at Re. 1 but a
lottery ticket of any other Government of the face value 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 Notifi-
C cation the writ petitioners above 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 Art. 301 read with Art. 304(a), briefly
stated, runs thus. According to the counsel if lottery tickets
D 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 reac with the
E impugned exemption Notification which permits such discrimination
would be violative of Art. 301 read with Art. 304(a) of the
Constitution. Counsel pointed out that Art. 301 guarantees
freedom of trade, commerce and intercourse throughout the
territory of India, subject to the other provisions of this Part
(Part XIII) and this is followed by Art· 304(a) which runs thus:-
F
"304. Notwithstanding anything in Article 301 or
article 303, the Legislature of a State may by law -
(a) impose on goods imported from other States or the
Union Territories any tax to which similar goods manu-
G factured or produced in that State are subject, so,
however, as not to discriminate between goods so
imported and goods so manufactured or produced;"
Counsel also relied upon three or four decisions of this Court
where the aforesaid provisions of the Constitution in the context
Ii of tax legislation came up for consideration before this Court
!i.AM\AJ v. WVT. OF WllLNADw [lULZAPURKAR, J. J, 377
and urged that in view of the settled position in law that A
emerges from those decisions the instant exemption Notification
will have to be held as violative of Art. 301 read with Art.
304(a) of the Constitution. Reference was made to At:labari Tea
Co. Ltd. v. The State of Assam and Ors. [1961] 1 S.C.R. 809, Firm
A.T.B. Mehtab Majid and Co. v. State of Madras and Anr. [1963]
Suppl. 2 S.C.R. 435, A. Bajee Abdul Shakoor and Company v. State B
of Madras, [1964] 8 s.c.R. 217, State of l'.adras v. N.K. Nataraja
Mnd•lfar, [1968] 3 s.c.R. 829 and v. Guruva:lah Naidu & Sons v.
State ·of Tamil Nadu and Anr. 38 s.1.c. 565 and counsel pointed
out that as a result of these decisions the legal position has
been well settled that freedom of trade, crunruerce and intercourse
guaranteed by Article 301 includes freedom from tax laws if such C
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 Art. D
304(a) and since in the instant case such situation obtains under
rhe impugned Notification the same will have to be struck down as
biaing violative of Art. 304(a).
I find considerable force in the aforesaid contention of
counsel for the writ petitioners. It is unnecessary to deal with E
all the decisions cited hy counsel but it will suffice if
reference is made only to the decision in A.T.B. !lehtab Majid and
Co.'s case (supra). 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 Nadras 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 F
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 G
Article 304(a) of the Constitution. The respondents contended (a)
that sales tax did not come within the purview of Articles
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 ss.3 and 5 of the Act, and (d) that the impugned Rule was not Ii
378 supiu,i.IE COUkT REPORTS [1985] SUPP.3 s.c.R.
A made with an eye on the place of origins of the goods. Negativing
all the contentions of the respondents this Court held that it
was well settled that taxitlj\ laws can be restrictions on trade,
~ommerce anJ in~ercourse, if they hampered free flow of trade and
if they are not what car; · be terned to be compensatory taA or
regulatory measure; that sa.~s tax of the kind under considera-
li tion could not be said to be a measure regulating any trade or a
compensatory tax levied for the use of trading facilities; that
the •ales tax which had the effect of discriminating between
goods of one State and goods of another may affect the free flow
of trade and it will then offend against Article 301 but will be
valid oaly if it comes within the terms of Article 304(a). The
Court finally held the impugnea. Kule 16(2) invalid. The instant
c case is on all fours of this decision.
The only answer given to the aforesaid challenge by the
~tate Government in its counter affidavit sworn by Mr. M. Kanda-
SW""1Y Deputy Secretary to the Government is that in the case of
Tamil Nadu Government lot~ery tickets the State Government are
th~ first dealers as well as the tax collecting authority while
u in the case ot imported tickets the tax el<!Ulent is not to be
borne by the State Government since they are not the first
sellers of those tickets and that if thie 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 19ttery tickets the State
E 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 with-
out 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
F 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 indiginous 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
G (here lottery tickets of other States) when they are sold within
the State of Tamil Nadu as against indigenous goods (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
H impugned Notification will have to be regarded as directly and
H.ANRAJ V• OOVT. OF TAMILNADU [SABYASACHI MUKliAiUI, J.] 379
ilDlllediately hampering free flow of trade, ccmmerce and inter- A
course. Discriminatory treatment in the matter of levying the
sales tax on imported lottery tict<ets which are similar to the
ones issued by the State Govermnent so as to hampe» 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 Art. 304(a) of the Consti- 1l
tution.
In the result I uphold the validity of the impugned
Amendments made in the two enactments, namely, Ta1llil Nadu General
Sales Tax Act, 1959 aml West Bengal Finance (Saks Tax) Act,
1941 but I strike down the impugned Notif!.cation GOMs No. 219 C
dated March 31, 1984 issued by t~ State Govermne'1t of Tamll
Nadu. The writ petitions are parcly allowed while thP. civil
appeal is dismissed. In thP circUl'!Stances I direct the parties to
bear their respective costs.
SAllYAS•CHI llUKllA1IJl, J. I have had the advantage of reading D
in draft the judgment delivered by my learned brother. I would
like to add my opinion on one aspect of the matter. Both under
the relevant provisions of the relevant Tamil Nadu Act and the
West Bengal Act, in order to attract the levy of sales-tax, there
must be sale of goods i.e. transfer of µroperty. In other words,
both these Acts insist on transfer of pr~perty in goods. Article E
366(12) of the Conatitution gives an inclusive definition of
'goods' indicating thereby "'goods' includes all materials,
commodities and articles." Therefore, there must be a transfer of
property in the goods for a price, the concept has the same
meaning which it haa under the Sale of Goods act, 1930.
It was urged before us on behalf of the dealers that by the F
issue of lottery tickets, the right to participate in the draw iR
created for the first time in the buyers. "In other words, it was
urged that by the sale of lottery ticket, the right to
participate is created for the first time if it is considered to
be 'grant' and as such a sale of goods, it was contended that
such right was not existing before the sale of the lottery G
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 li
380 SUPREME COURT RE~ORTS [1985] SUPP.3 s.c.R.
A partici~ate 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
B 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 right by the grantor
in favour of the grantee.
I respectfully agree with my learned brother that the
C 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
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
D 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 iu the draw which is granted to the purchaser or
E the grantee of the lottery ticket. The transfer of right from the
promoter-grantor to the buyer-guarantee is involved iu the sale
of a lottery ticket but is it the trausf er 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.
F
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
G 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.
I should, however, not be understood to accept the position
that if private lotteries are permissible and legal, a point
H which need not be decided in these cases, in such cases sale of
goods was involved.
h.ANRAJ v. GOVT. OF TAl'iILNADU [MUlillARJI, J.] 381
I, however, agree with my learned brother that the right to A
participate in the draw under a lottery ticket remains a valuable
right till the draw takes place and it is· for this reason that
licence agents or whole-salers 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 E
as slips of paper or memoranda evidencing the right to partici-
pate in the draw can be regarded as dealer's 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.
c
S.R. Petitions allowed and Appeals dismissed.
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