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CASE NO.: Appeal (civil)  4552 of 1998

PETITIONER: M/s. Sunrise Associates

RESPONDENT: Govt. of  NCT of Delhi & Ors.

DATE OF JUDGMENT: 28/04/2006

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

JUDGMENT: J U D G M E N T

WITH CA. NO.4553-4557/1998, 4913, 6256-6260/1998,  177-179/1999, 2155/2000, 6893 of 2003 & SLP(C) Nos.2469,  2473, 2614, 2617, 2507, 2841, 5225-26, 5608, 11129, 11768  of 2000, W.P. (C) No.33/2002, 127/2005 & SLP (C)  NOS.18466/2002, 16270/2001, 6907/2002, 17894/2002

RUMA PAL, J.

       By an order dated 13th October, 1999 in Sunrise  Associates v. Government of NCT of Delhi & Ors. (2000) 1  SCC 420, the decisions of this Court in H. Anraj v.  Government of Tamil Nadu (1986) 1 SCC 414  as well as  Vikas Sales Tax Corporation & Anr. v. Commissioner of  Commercial Taxes and Anr. (1996) 4 SCC 433 (in so far as  it affirmed the decision in the  H. Anraj) have been referred to  this Bench for re-consideration.  The question in H. Anraj  was whether sales tax can be  levied by States on the sale of lottery tickets.  A bench of two- Judges held that a lottery involved (i) the right to participate in  the lottery draw, and (ii) the right to win the prize, depending  on chance.  The learned Judges were of the opinion that while  the second right was a chose in action and therefore not  ’goods’ for the purposes of the levy of Sales Tax, the first was a  transfer of a beneficial interest in moveable  goods and was a  sale within the meaning of Article 366 (29-A)(d) of the  Constitution and consequently subject to sales tax.           The immediate cause for the present reference was a  decision of the High Court of Delhi dated 17th July, 1998 in  Haryana State Lotteries v. Govt. of NCT 1998 (46) DRJ 397   disposing of a series of writ petitions which construed  H.  Anraj  and held that lottery tickets were goods and are liable  to sales tax under the Delhi Sales Tax Act, 1975. Several of the  writ petitioners before the Delhi High Court have challenged  the decision of the Delhi High Court before this Court.  In the  appeal preferred by Sunrise Associates, the order of reference  was made on the prima facie view that there was no good  reason to split  a lottery into two separate rights and,  therefore, the judgment in H. Anraj required reconsideration.   Since in the case of Vikas Sales Corporation v.  Commissioner of Commercial Taxes (supra), a bench of  three-Judges had agreed with the decision of H. Anraj,  it was  necessary that the appeal should be heard by a Constitution  Bench.       The relevant provisions of law which formed the  background in the context of which the decision of H.Anraj  

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was given are considered by us prior to assessing the  correctness of the decision.  Entry 54 of List II of the Seventh  Schedule read with Article 246(3) of the Constitution gives the  States power to make laws with respect to  "taxes on the sale  or purchase of goods other than newspapers subject to the  provisions of Entry 92(A) of List I".  The meaning of the  expression "sale of goods" was considered by a Constitution  Bench in the The State of Madras v. Gannon Dunkerley &  Co. Ltd. 1958 SCR 379.  The question arose in connection  with assessment of sales tax under the Madras General Sales  Tax Act, 1939  for the year 1949-50 on the value of materials  used by the respondent-assessee for the execution of a works  contract. The Constitution, although it defines ’goods’ under  Article 366((12) as ’including all materials, commodities and  articles", contains no definition of the expression ’sale of  goods’.  The Court held that the expression ’sale of goods’ in  the entry  cannot be construed in its popular sense and it  must be interpreted in its legal sense.  After considering  various authorities as well as the provisions of the Sales of  Goods Act, 1930, the Court held that the expression ’sale of  goods’ is what it means in the Sale of Goods Act, 1930. A  contract for the sale of goods, according to Section 4(1) of the  Sale of Goods Act, 1930 "is a contract whereby the seller  agrees to transfer the property in goods to the buyer for a  price".           This classical concept of sale was held to apply to the  entry in the legislative list in that there had to be three  essential components to constitute a transaction of sale before  tax could be imposed- namely, (i) an agreement to transfer title  (ii) supported by consideration, and (iii) an actual transfer of  title in the goods. In the absence of any one of these elements  it was held that there was no sale.  Therefore, a contract under  which a contractor agreed to set up a building would not be a  contract for sale. It was one contract, entire and indivisible  and there was no separate agreement for sale of goods  justifying the levy of sales tax by the provincial legislatures.  Parties could have provided for two independent agreements,  one relating to the labour and work involved in the erection of  the building and the second relating to the sale of the material  used in the building in which case the latter would be an  agreement to sell and the supply of materials thereunder, a  sale. Where there was no such separation, the contract was a  composite one and it was not classifiable as a sale.         The narrow definition put on the word "sale" by Gannon  Dunkerley was followed by Courts in several cases excluding  other transactions such as hire purchase, long leases etc. from  the scope of "sale" on the ground that one or more of the three  components of sale were absent. Consequently Article 366 of  the Constitution was amended by introduction of Clause 29A  which is to the effect that "tax on the sale or purchase of  goods" for the purposes of the Constitution would include six  particular transactions which were, by virtue of judicial  decision, excluded from the phrase. We are concerned with the  first class of transaction so included namely:

(a)     a tax on the transfer,  otherwise than in  pursuance of a contract, of  property in any goods for  cash, deferred payment or  other valuable  consideration;

      xxx              xxx             xxx        xxx              xxx             xxx

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and such transfer, delivery or supply of any  goods shall be deemed to be a sale of those  goods by the person making the transfer,  delivery or supply and a purchase of those  goods by the person to whom such transfer,  delivery or supply is made;    Therefore in order to constitute a deemed sale within the  meaning of Art. 366(29A) (a), there has to be 1) goods 2) a  transfer  of property in the goods  3) valuable consideration.  The requirement of an agreement for sale is not necessary for  constituting a sale under this sub-clause.  The absence of any  one of these elements would mean that the transaction far  from being a sale within the Gannon Dunkerley definition,  would not even be a deemed sale within the extended  definition of sale under Art. 366(29A) (a).   Following the Constitutional amendment, the States  amended their respective Sales Tax Laws to incorporate the  constitutional definition of tax on the sale or purchase of  goods. The States of Tamil Nadu and West Bengal were no  exception. The Tamil Nadu General Sales Tax Act 1959 and  the Bengal Finance (Sales Tax) Act 1941 were both amended  to incorporate new definitions of ’sale’.   Section 2(j) and Section 2 (n) of the Tamil Nadu Act  defined ’goods’ and ’sale’ as noted in H. Anraj thus: "2(j) ’Goods’ means all kinds of movable  property (other than newspapers,  actionable claims, stocks and shares and  securities) and includes all materials,  commodities, and articles (including  those to be used in the fitting out  improvement or repair of moveable  property); and all growing crops, grass or  things attached to, or forming part of the  land which are agreed to be severed  before sale or under the contract of sale;

2(n) ’Sale’ with all its grammatical  variations and cognate expressions  means every transfer of the property in  goods (other than by way of a mortgage,  hypothecation, charge or pledge) by one  person to another in the course of  business for cash, deferred payment or  other valuable considerations;  

Other clauses give extended meanings which are not  material.         Similarly the expressions ’goods’ and ’sale’ were defined  in Section 2(d) and (g) respectively of the Bengal Act thus: "2(d) ’goods’ include all kinds of  movable property other than  actionable claims, stocks, shares or  securities;

2(g) ’sale’ means any transfer of  property in goods for cash or  deferred payment or other valuable  consideration.

       These definitions of ’goods’ reflect the definition of the  word in the Sales of Goods Act, 1930 which reads: "every kind of movable property other  than actionable claims and money;

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and includes stock and shares,  growing crops, grass, and things  attached to or forming part of the  land which are agreed to be severed  before sale or under the contract of  sale".

       All these definitions exclude inter alia an actionable claim  from the definition of "goods".  An "actionable claim" has in  turn been defined in Section 3 of The Transfer of Property Act,  1882 as meaning: "a claim to any debt, other than a debt  secured by mortgage of immoveable  property or by hypothecation or pledge of  moveable property, or to any beneficial  interest in moveable property not in the  possession, either actual or constructive,  of the claimant, which the Civil Courts  recognize as affording grounds for relief,  whether such debt or beneficial interest be  existent, accruing, conditional or  contingent".  

The dealers’ (who were the appellants in H. Anraj)  contention was that a lottery ticket was only a slip of paper or  memorandum evidencing the right of the holder to share in the  prize or the distributable funds and was merely a convenient  mode for ascertaining the identity of the winner. It was  contended that a sale of a lottery ticket was nothing more than  a sale of a chance to win a prize, and therefore, it was merely a  contingent interest in money.   Alternatively it was submitted  that the lottery tickets were in fact actionable claims within  the meaning of Section 3 of the Transfer of Property Act, 1882,  and therefore, outside the definition of "goods" under the Sales  Tax Acts.  The Court in H. Anraj came to the conclusion that the  transfer of a lottery ticket upon consideration paid by the  purchaser was not a mere contract creating an obligation or  right  in personam between the parties, but was in the nature  of a grant. The Court noted the various definitions of the word  "lottery" in dictionaries and authoritative text books and  decisions of the Courts and held that a lottery was composed  of three essential elements, namely; 1) chance, 2)  consideration; and 3) prize.  As we have mentioned earlier,  according to the learned Judges a sale of a lottery ticket  conferred on the purchaser two rights viz. a) the right to  participate in the draw and b)  the right to claim a prize  contingent upon the purchaser being successful in the draw.   Both were held to be beneficial interests in moveable property,  the former "in praesenti",  the latter in futuro  depending on the  contingency. To use the words of the Court:-

" Lottery tickets, not as physical articles,  but as slips of paper or memoranda  evidence not one but both these  beneficial interests in moveable property  which are obviously capable of being  transferred, assigned or sold and on their  transfer, assignment or sale both these  beneficial interests are made over to the  purchaser for a price\005\005\005\005\005\005\005\005\005\005  ......the two entitlements which arise on  the  purchase of a lottery ticket are of a  different character, inasmuch as the right  to participate arises in praesenti, that is

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to say it is a choate on perfected right in  the purchaser on the strength of which  he can enforce the holding of the draw,  while the other is inchoate right which is  to materialize in future as and when the  draw takes place depending upon his  being successful in such draw.  Moreover,  on the date of the purchase of the ticket,  the entitlement to participate in the draw  can be said to have been delivered into  the possession of the purchaser who  would be enjoying it from the time he has  purchased the ticket and as such it  would be a chose in possession while the  other would be an actionable claim or a  chose in action as has been held in  Jones v. Carter  and King v. Connare   on which counsel for the dealers relied. It  is thus clear that a transfer of the right to  participate in the draw which takes place  on the sale of a lottery ticket would be a  transfer of beneficial interest in movable   property to the purchaser and therefore,  amounts to transfer of goods and to that  extent it is no transfer of an actionable  claim; to the extent that it involves a  transfer of the right to claim a prize  depending on a chance it will be an  assignment of an actionable claim."  

It was also said that :- " If incorporeal right like copyright or an  intangible thing like electric energy can  be regarded as goods exigible to sales tax  there is no reason why the entitlement to  a right to participate in a draw which is  beneficial interest in moveable  property  of incorporeal or intangible character  should not be regarded as ’goods’ for the  purpose of levying sales tax.  As stated  above lottery tickets which comprise such  entitlement do constitute a stock-in-trade  of every dealer and therefore his  merchandise which can be bought and  sold in the market.  Lottery tickets  comprising such entitlement, therefore,  would fall within the definition of ’goods’  given in the Tamil Nadu Act and the  Bengal Act."  

The Court also rejected the submission of the counsel for  the dealers that a sale of a lottery ticket does not involve the  transfer of any right. The contention was that just as a   company before it issues share capital does not hold any of the  shares which come to exist only in the hands of the  shareholders  through subscribing for them, so in the case of a  lottery the promoter sponsoring it, does not have the right to  participate in the draw or the right to claim the prize.  Since  one cannot ’transfer’ what one does not have, it was argued  that there was no ’transfer’ of any right by the promoter to the  purchaser of the ticket. The submission was rejected on the  ground that the analogy was inapt as Joint Stock Companies  were governed by the provisions of the Company’s Act and  Memorandum of Articles of Association of the Company’s  whereas the issue of lottery tickets was governed by raffle

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schemes and the rules framed therefor by the promoter  containing provisions which were entirely different. Secondly,  the context in which lottery tickets were issued was different  from the context in which shares were allotted. Moreover it  was said that:- "\005the agreement that comes into  existence as a result of the sale of a  lottery ticket by a promoter to a buyer is  in the nature of a grant conferring the  two rights (the right to participate and  the right to claim a prize) as distinct from  the right to receive  or claim a  prize in  such draw, needs to be highlighted which  has a significant bearing on the question  whether  the lottery tickets would be  goods or not.  It cannot be disputed that  this right to participate in the draw under  a lottery ticket remains a valuable right  till the draw takes place and it is for this  reason that licenced agents or  wholesalers or dealers of such tickets are  enabled to effect sales thereof till the  draw actually takes place and as such till  then the lottery tickets constitute their  stock-in-trade and therefore a  merchandise. In other words, lottery  tickets, not as physical articles but as  slips of paper or memoranda evidencing  the right to participate in the draw must  in a sense be regarded as the dealer’s  merchandise and therefore, goods,  capable of being bought or sold in the  market."

The Court  also relied upon the decision in United States  Vs. Mueller  to hold that for the purpose of  imposing  levy of  sales tax lottery tickets comprising  the entitlement to a right  to participate in a draw will have to be regarded as  goods  properly so called.   Justice Mukharji (as His Lordship then was) concurred  with some hesitation with the decision of Justice Tulzapurkar,  J. who delivered the main judgment, particularly with regard  to the question of transfer of a right by the seller of the lottery  ticket to the purchaser.  This hesitation is more than clearly  brought out  in his short judgment where he said:- " I have, however persuaded myself to  agree with the order proposed by my  learned brother because the promoter of  lottery in the cases involved before us is  the State and the grant is in derogation of  the rights of the State.  The State in my  opinion, can create such right for the first  time, and such transfer of the right by  the state as a promoter would amount to  a transfer of property and being in  consideration of a price can be sale of  goods\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005..  I should, however, not be understood to  accept the position that if private lotteries  are permissible and legal, a point which  need not be decided in these cases, in  such cases sale of goods was involved or  not."  

Both learned Judges, however, agreed that the right to

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participate in the draw under a lottery ticket was a valuable  right and that lottery tickets, not as physical articles but as  slips of paper or memoranda evidencing the right to  participate in the draw can be regarded as dealers  merchandise and, therefore goods which are capable of being  bought or sold in the market.         The logical corollary of this was drawn by the Karnataka  High Court in the case of Nirmal Agency v. Commercial Tax  Officer 1992 (86) STC 450.  Given the dual nature of the  rights involved in a lottery as decided by H. Anraj, the High  Court said that sales tax could be levied only on that part of  the lottery ticket which had been held to amount to a transfer  of goods.  The Assessing Authority would have to determine  how much of the consideration was referable to the right to  participate in the draw and how much to the chance of  winning, and thereafter assess  the dealer on the  first part  alone. Vikas Sales Corporation & Anr v. Commissioner of  Commercial Taxes and Anr.   was a case where the issue  before this Court was whether REP Licenses or replenishment  licences were goods so that Sales  tax could be levied on their  transfer. The REP licences gave permission to an exporter to  take credit for the exports made.  Such credit could be  adjusted against import duty if and when the exporter wished  to import goods. The Import and Export Policy, 1993, which  contained the relevant provisions relating to REP licences  specifically permitted transferability of the licences. This Court  considered the definition of "goods" in the Constitution, in the  Sales of Goods Act 1930, the Central Sales Tax Act, 1956 the  Tamil Nadu  General Sales Tax Act,  1959, the Karnataka  Sales Tax Act, 1957, as well as the Kerala General Sales Tax  Act, 1963 and said that all these definitions provided that  goods mean inter alia all kinds of moveable property.  The  definition of property in several authorities was thereafter  considered and it was concluded that the material on record  showed a uniform emphasis on the expansive manner in  which the expression ’property’ was understood.  It was noted  that debts, contracts and other choses in action were chattels  no less than furniture or stock in trade.  Similarly, patents,  copyrights and other rights in rem were also included within  the meaning of moveable property. The Court rejected the  argument that REP licences were actionable claims within the  meaning of Section 3 of the Transfer of Property Act and said:- "When these licences/scrips are being  bought and sold freely in the market as  goods and when they have a value of  their own unrelated to the goods which  can be imported thereunder, it is idle to  contend that they are in the nature of  actionable claims.  Indeed, in H. Anraj  the main contention of the petitioners  was that a lottery ticket was in the nature  of an actionable claim.  The said  argument was rejected after an elaborate  discussion of law on the subject.  We  agree with the said decision and on that  basis hold that  the REP Licences/Exim  Scrips are not in the nature of actionable  claims." (para 35 pg.449)

Relying on the decision in H. Anraj  and  Vikas Sales  Corporation  the Delhi High Court in the judgment on which  the referral order has been passed, rejected a challenge to the  constitutional validity of Section 4(1) (cc) of the Delhi Sales Tax  Act, 1975 as introduced by the Delhi Sales Tax (Second

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Amendment) Act 1994 with effect from 2.1.1995. The  amendment was challenged by the dealers on various  grounds. It was argued inter alia that the sale of lottery tickets  did not involve a sale of goods within the meaning of the Sales  Tax Act,  and that even if it did, only that right which was held  to be a sale namely, the right to participate in the draw could  be subject to Sales Tax.  The value  of the right to win the  lottery prize would have to be segregated. The Delhi High  Court rejected the submissions based on its reading of the  decision  in H. Anraj and Vikas Sales.  We are not called upon to decide all the grounds taken  by the appellants impugning the decision except to the extent  that the High Court relied on the two decisions which are  under reconsideration before us.  The High Court construed  the decision in H. Anraj  and held that it was an authority for  the proposition that lottery tickets themselves are goods. It  was said:-  "A reading of the judgment (in Anraj) in  its entirety \005\005\005leaves no manner of  doubt that the lottery tickets have been  held to be merchandise or trading stock  of the dealer and hence goods properly  so-called. Undoubtedly, one of the  components of the lottery tickets  is a  right to enforce the holding of the draw  and to claim a prize but that is a right  running along with the lottery tickets.  It  does not detract from the holding that the  lottery tickets are goods.  Even at the risk  of repetition we would like to stress that  in H. Anraj-II their Lordships have held  the lottery ticket comprising of two  components in the process of analyzing  its juridical concept.  But at more places  than one they have clearly said (i) lottery  tickets are movable property as opposed  to immovable property, (ii) the  assumption of lottery tickets being  contractual documents cannot militate  against their being goods, (iii) till the  draw takes place they are freely marketed  as goods, and (iv) they must be regarded  as the dealer’s merchandise or stock in  trade freely changing hands.  The lottery  tickets have a value of their own de hors  their components".   

Having held that the decision in H. Anraj  decided that  the lottery tickets themselves were goods, the High Court  differed with the view expressed by the Karnataka High Court  in Nirmal Agency v. Commercial Tax Officer (supra) which  had proceeded on the basis that H. Anraj  had held that the  goods in a sale of lottery tickets comprised of the rights to  participate in the draw and the chance to win. Before us the appellants, who are dealers in the sale of  lottery tickets, have submitted that H. Anraj wrongly drew a  distinction between the right to participate in the draw and  chance to win the prize.  It was submitted that such  bifurcation was artificial as both were part of the same  transaction. It was submitted that even on the "two rights"  theory  each of those rights would be choses in action. As far  as the decision in Vikas Sales  is concerned, it was submitted  that the additional reason given namely free transferability for  holding that a particular thing was goods, was erroneous.  It  was pointed out that even actionable claims such as

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negotiable instruments and debentures may be freely  transferable.  As far as the DEPB is concerned, according to  the appellants, it was in the nature of a notional credit which  an exporter acquires on export by way of an entry in a  passbook. This credit was utilizable by the importer to be  adjusted against the import duty payable on goods imported.  The credit was freely transferable but it could not be said to be  goods only by that reason.  At best it was an actionable claim. According to some appellants, the right to participate in a  draw which was held to be a sale of goods by H. Anraj  was  only a right to services rendered by the lottery organizers.   There was no transfer of any moveable property in the entire  transaction.  It was also submitted that when there were  divisible elements in a contract, the predominant element  would determine the nature of the right.  As far as lottery  tickets were concerned, the right to participate in the draw  was overwhelmingly dominated by the element of the right to  claim the prize by  the prize winner.  It was contended that  value wise the prize money constituted 90% of the total  amount collected from the purchasers whereas the value of  the right to participate would be limited to the administrative  expenses for holding the draw which accounted for the  balance 10% of the monies collected. Several other issues have  been raised on the merits of the decision of the Delhi High  Court.  As we have said, those other issues will have to be  considered separately at the time of disposal of the appeals  after we have disposed of the subject matter of this reference. The State Governments have not taken consistent  stands.  As far as the Government of the National Capital  Territory of Delhi is concerned, it was submitted that the very  arguments which had been made, considered and rejected in   H. Anraj’s  case were sought to be reagitated again by the  appellants.  It was submitted that the reasoning in H. Anraj   did not require reconsideration.  It had held the field for  several decades and had been followed in a number of cases.   It was submitted that a lottery ticket represents a commodity  within the meaning of Article 366 (12). The State of Tamil Nadu on the other hand submitted  that the lottery ticket itself was a chattel or goods and,  therefore, falls squarely within the net of taxation under the  Tamil Nadu Sales Tax Act.  It was submitted that there can be  a value addition to the lottery tickets by valuing all the rights  accruing to the holder of the ticket, but these additional rights  did not detract from the fact that the lottery ticket itself is an  item of merchandise and liable to be sold as such.  Reliance  was also placed on the General Clauses Act with regard to the  definition of moveable property.  It was contended that since a  lottery ticket was not immoveable property it was moveable  property and therefore, goods.   The State of Maharashtra has addressed us  on the  question whether the sale of a Duty Entitlement Pass Book  (DEPB) should attract sales tax under the Bombay Sales Tax  Act, 1959. It was  submitted that considering the valuable  right conferred by the DEPB, it is an item of movable property  and therefore ’goods’ within the definition of the word in  Section 2(13) of the Act. The definition in common with other  State Sales Tax Acts, includes every kind of movable property  other than actionable claims and money. It was submitted  that "actionable claim" as defined in Section 3 of the Transfer  of Property Act, is substantially different from the concept of  "chose in action" in English law and it was submitted that  what is a ’chose in action’  was not necessarily an actionable  claim. The reasoning in Vikas Sales (supra) has been relied  on, which it was urged, should be reaffirmed. The other  appearing States have adopted the arguments made on behalf

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of the NCT, Delhi  and Tamil Nadu and Maharashtra.    It is necessary at this stage to clarify that the order of  reference in Sunrise V. NCT,  Delhi  (supra) is limited to the  question whether lottery tickets are ’goods’.  We have not been  called upon to answer the question whether REP licences (or  the DEPB which has replaced the REP licences) are ’goods’.   Although we have  heard counsel at length on this, having  regard to the limited nature of the reference, we do not decide  the issue.  The decision in Vikas Sales was  referred to only  because it approved the reasoning in Anraj and not because  the referring Court disagreed with the conclusion in Vikas  Sales that REP licences were goods for the purposes of levy of  sales tax.  Indeed REP licences were not the subject matter of  the appeal before the referring Court and could not have  formed part of the reference.  The only question we are called  upon to answer is whether the decision in H. Anraj that  lottery tickets are goods for the purposes of Article 366 (29A)(a)  of the Constitution and the State Sales Tax Laws, was correct. The first dispute which has to be resolved is what H.  Anraj in fact held.  Did it hold,  as was found by the  Karnataka High Court in Nirmal Agency Vs. Commercial Tax  Officer, that the lottery tickets were goods only because they  represented the right to participate in the draw? Or did it hold,  as has been found by the Delhi High Court, that the lottery  tickets themselves were the goods which were sold? The  conflict is a direct consequence of the somewhat ambiguous  language used in H. Anraj.  A:    In paragraph 23 of the report, the Court did say that  lottery tickets are moveable property and as such would fall  within the expression "goods".  However, the Court qualified  that statement immediately by saying that the questions  whether tickets constituted goods properly so called or are  slips of paper or memoranda merely evidencing the right to  claim a prize by chance and whether these are actionable  claims and hence  excluded from the concept of goods, would  be considered subsequently in the judgment.   B:       In paragraph 27 of the report (which we have quoted  earlier), the Court categorically stated that a lottery ticket was  goods - not as a physical article but as a slip of paper or  memorandum evidencing a) the right to participate in the draw  and b) the right to claim a prize contingent upon the  purchaser being successful in the draw. This is reiterated in  paragraph 29 of the report. It was also stated that for the  purpose of imposing the levy of sales tax, lottery tickets  comprising the entitlement to a right to participate  in a draw  would have to be regarded as goods properly so called.   C:      In the same paragraph the Court said what is transferred  to the purchaser is the right to participate in the draw.  That is  the ’goods’ which was a chose in possession.  The same right  has been later described as the beneficial interest in movable  property, that is to say that the right was not the movable  property itself. D:      Then again in paragraph 30 it was said:- "30. It is true that this entitlement to a  right to participate in the draw is an  entitlement to beneficial interest which is  of incorporeal or intangible nature but  that cannot prevent it from being  regarded as goods".

This again indicates that it is the right to participate  in  the draw which was being described as the goods. Otherwise it  was not necessary to refer to other incorporeal rights which  had been judicially recognized as goods for the purposes of  levying sales tax such as copyrights or intangible rights such

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as electricity.   Ultimately, however, clarity in the matter is brought  about by the concurring judgment of Justice Sabyasachi  Mukharji (as his Lordship then was), when he said:- "I, however, agree with my learned  brother that the right to participate in the  draw under a lottery ticket remains a  valuable right till the draw takes place  and it is for this reason that licensed  agents or wholesalers or dealers of such  tickets are enabled to effect sales thereof  till the draw actually takes place and  therefore lottery tickets, not as physical  articles but as slips of paper or  memoranda evidencing the right to  participate in the draw can be regarded  as dealer’s merchandise and therefore  goods which are capable of being brought  or sold in the market".

       In other words, the second conclusion which we have  indicated against ’B’, was the ratio. The lottery ticket was held  to be merely evidence of the right to participate in the draw  and therefore goods  the transfer of which was a sale.  To the  extent that the lottery ticket evidenced the right to claim the  prize, it was not goods but an actionable claim and therefore  not ’goods’ under the Sales Tax Laws. A transfer of it was  consequently not a sale.  The lottery ticket per se had no  innate value. The interpretation by the Delhi High Court of the  ratio in H. Anraj was in our opinion erroneous.           Interestingly, some of the States, in particular the State  of Tamil Nadu have expressly jettisoned the reasoning in H.  Anraj  and have asserted that the ticket itself is the subject  matter of sale which is assessable to Sales tax. The  submission is unacceptable.          The word ’goods’ for the purposes of imposition of sales  tax  has been uniformly defined in the various sales tax laws  as meaning all kinds of moveable property.  The word  "property" may denote the nature of the interest in goods and  when used in this sense means title or ownership in a thing.  The word may also be used to describe the thing itself. The two  concepts are distinct, a distinction which must be kept in  mind when considering the use of the word in connection with  the sale of goods. In the Dictionary of Commercial law by A.H.  Hudson (1983 Edn.) the difference is clearly brought out.  The  definition reads thus:         " ’Property’ -In commercial law this may carry its  ordinary meaning of the subject-matter of ownership. But  elsewhere, as in the sale of goods it may be used as a synonym  for ownership and lesser rights in goods". Hence, when used in  the definition of ’goods’ in the different sales tax statutes, the  word ’property’ means the subject matter  of ownership.  The  same word in the context of a ’sale’ means the transfer of the  ownership in goods.  We have noted earlier that all the statutory definitions of  the word ’goods’ in the State Sales Tax Laws have uniformly  excluded, inter alia, actionable claims from the definition for  the purposes of the Act.  Were actionable claims etc., not  otherwise includible in the definition of ’goods’ there was no  need for excluding them. In other words, actionable claims are  ’goods’ but not for the purposes of the Sales Tax Acts and but  for this statutory exclusion, an actionable claim would be  ’goods’ or the subject matter of ownership. Consequently an  actionable claim is movable property and ’goods’ in the wider  sense of the term but a sale of an actionable claim would not

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be subject to the sales tax laws.  Distinct elements are deducible from the definition of  ’actionable claim’ in Section 3 of the Transfer of Property Act.  An actionable claim is of course as its nomenclature suggests,  only a claim.  A claim might connote a demand, but in the  context of the definition it is a right, albeit an incorporeal one.  Every claim is not an actionable claim. It must be a claim  either to a debt or to a beneficial interest in movable property.   The beneficial interest is not the movable property itself, and  may be existent, accruing, conditional or contingent.  The  movable property in which such beneficial interest is claimed,  must not be in the possession of the claimant. An actionable  claim is therefore an incorporeal right. That goods for the  purposes of Sales Tax may be intangible and incorporeal has  been held in Tata Consultancy Services Vs. State of Andhra  Pradesh (2005) 1 SCC 308. What then is the distinction between actionable claims  and other goods on the sale of which sales tax may be levied?    The Court in Vikas Sales  (supra) said "when these  licenses/scrips are being bought and sold freely in the market  as goods and when they have a value of their own unrelated to  the goods which can be imported thereunder, it is idle to  contend that they are in the nature of actionable claims". It  was  assumed  that   actionable  claims    are  not transferable   for  value  and  that   that   was   the   difference between    ’actionable   claims’  and     those   other    goods which   are     covered    by    the     definition     of     ’goods’   in   the  Sale    of   Goods   Act,   1930 and the Sales Tax Laws. The  assumption was fallacious and the conclusion in so far as it  was based on this erroneous perception, equally wrong.  The Transfer of Property Act 1882, deals with transfer of  actionable claims in Chapter VIII of that Act. Section 130 of  the Transfer of Property Act provides that an actionable claim  may be assigned for value. A right on the fulfillment of certain  conditions to call for  delivery of goods mentioned in a contract  is an actionable claim and assignable under Section 130. (See  Jaffer Meher Ali Vs. Budge-Budge Jute Mills Co.(1906) 33  Cal.702). There may also be assignments of an actionable  claim dehors Section 130 (See Bharat Nidhi Ltd. Vs.  Takhatmat (1969) 1 SCR 595).  Negotiable Instruments,  another species  of actionable claim, are transferable under  the Negotiable Instruments Act 1881. Transferability is  therefore not the point of distinction between actionable  claims and other goods which can be sold. The distinction lies  in the definition of actionable claim. Therefore if a claim to the  beneficial interest in movable property not in the vendee’s  possession is transferred, it is not a sale of goods for the  purposes of the sales tax laws. An actionable claim would include a right to recover  insurance money or a partner’s right to sue for an account of a  dissolved partnership or the right to claim the benefit of a  contract not coupled with any liability (see Union of India V.  Sarada Mills (1972) 2 SCC 877, 880).  A claim for arrears of  rent has also been held to be an actionable claim (State of  Bihar V. Maharajadhiraja Sir Kameshwar Singh 1952 SCR  889, 910). A right to the credit in a provident fund account  has also been held to an actionable claim ( Official Trustee,  Bengal v. L. Chippendale, AIR 1944 (Cal.) 335; Bhupati  Mohan Das v. Phanindra Chandra Chakravarty & Anr. AIR  1935 (Cal.) 756). In our opinion a sale of a lottery ticket also  amounts to the transfer of an actionable claim.            A  lottery ticket has no value in itself.  It is a mere piece  of paper. Its value lies in the fact that it represents a chance or  a right to a conditional benefit of winning a prize of a greater  value than the consideration paid for the transfer of that

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chance.  It is nothing more than a token or evidence of this  right.  The Court in H.Anraj,  as we have seen, held  that a  lottery ticket is a slip of paper or memoranda evidencing the  transfer of certain rights.  We  agree.        Webster’s Words and Phrases Permanent Edition, Vol.  25-A Supplement defines a ’ticket’ as " a printed card or a  piece of paper that gives a person a specific right, as to attend  a theatre, ride on a train, claim or purchase, etc." The Madras  High Court in  Sesha Ayyar  vs. Krishna Ayyar AIR 1936  Mad. 225  also held "tickets of course are only the tokens of  the chance purchased, and it is the purchase of this chance  which is the essence of a lottery".   The sale of a ticket  does not necessarily involve the sale  of goods.  For example the purchase of a railway ticket gives  the right to a person to travel by railway. It is nothing other  than a contract of carriage.  The actual ticket is merely  evidence of the right to travel. A contract is not property, but  only a promise supported by consideration, upon breach of  which either a claim for specific performance or damages  would lie (Said v. Butt 1920 3 KB 497).  Like railway tickets,  a ticket to see a cinema or a pawn brokers ticket are  memoranda or  contracts between the vendors of the ticket  and the purchasers. Cases on whether  the terms specified on  such tickets bind the purchaser are legion.  It is sufficient for  our purposes to note that tickets are themselves, normally  evidence of and in some cases the contract between the buyer  of the ticket and its seller.  Therefore a  lottery ticket can be  held to be goods if at all only because it evidences the transfer  of a right.           The question is, what is this right which the ticket  represents?  There can be no doubt that on purchasing a  lottery ticket, the purchaser would have a claim to a  conditional interest in the prize money which is not in the  purchaser’s possession. The right would fall  squarely within  the definition of an actionable claim and would therefore be  excluded from the definition of ’goods’ under the Sale of Goods  Act and the Sales Tax statutes.  This was also accepted in  H.Anraj  when the Court said that to the extent that the sale  of a lottery ticket involved a transfer of the right to claim a  prize depending on chance, it was an assignment of an  actionable claim. Significantly in B.R. Enterprises V. State of  U.P.and Ors. (1999) 2 SCC 700 construing H.Anraj  the  Court said  "52.    So, we find three ingredients in the  sale of lottery tickets, namely, (i) prize, (ii)  chance, and (iii) consideration. So, when  one purchases a lottery ticket, he  purchases for a prize, which is by chance  and the consideration is the price of the  ticket".            The further distinction sought to be drawn in  H.Anraj between the chance to win and the right to participate  in the draw was in our opinion unwarranted.  A lottery having  been held to be in essence a chance for a prize, the sale of a  lottery ticket can only be a sale of that chance.  There is no  other element. Every right can be sub-divided into lesser  rights.   When these lesser rights culminate in a legally  recognizable right, it is the latter which defines the right. The  right to participate in the draw is a part of the composite right  of the chance to win and it does not feature separately in the  definition of the word "lottery".  It is an implicit part of the  chance to win. It is not a different right.  The separation is  specious since neither of the rights can stand without the  other.  A draw without a chance to win is meaningless and one  cannot claim a prize without participating in the draw.  In fact

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the transfer of the chance to win assumes participation in the  draw. The Supreme Court of Appeals of West Virginia, in West  Virginia in State of West Virginia vs. John Wassick 156  W.Va.128, 191 S.E.2d 283,  held that "free plays" which  could be won predominantly by chance for consideration by  operating multiple coin pinball machines for cash payoffs was  a prize and the pinball machine constituted the lottery.  This  indicates that a draw is merely a method of holding the lottery  just as a pinball machine may be a method of holding the  lottery and does not constitute a separate right. There is no value in the mere right to participate in the  draw and the purchaser does not pay for the right to  participate. The consideration is paid for the chance to win.   There is therefore no distinction between the two rights. The  right to participate being an inseparable part of the chance to  win is therefore part of an actionable claim.         The authorities considered by the Court in H.Anraj do  not support the sub division of the chance to win into a  further distinct right to participate .  The Court sought to draw  the distinction between the chance to win and the right to  participate by describing the former as a right ’in futuro’ and  the latter as "in praesenti". Both the rights are in fact ’in  futuro’.   In any event the distinction is immaterial to the  question as to whether the subject matter of the transfer is an  actionable claim, since an actionable claim may be existent,  accruing, conditional or contingent.          Even if the right to participate is assumed to be a  separate right, there is no sale of goods within the meaning of  sales tax statutes when that right is transferred.  When H.  Anraj  said that the right to participate was a beneficial  interest in moveable property, it did not define what that  moveable property was. The draw could not and was not  suggested to be the moveable property.  The only object of the  right to participate would be to win the prize. The transfer of  the right would thus be of a beneficial interest in movable  property not in possession. By this reasoning also a right to  participate in a lottery is an actionable claim.          We may with profit compare the views of other countries  having similar systems of law as our own as to whether the  sale of a lottery ticket is a sale of goods or an actionable claim.   The High Court of Australia had held in Van Rassel v. Kroon  [1953] HCA 3: (1953)87 CLR 298 (4 March 1953): "The person in whose name the  lottery ticket issues obtains the legal  title to what is a chose in action".            In Jones Vs. Carter  8 Q.B. 134 a lottery was held  regarding the outcome of a horse race.  The subscribers paid a  sum of money and then drew lots. On each lot was written the  name of a horse.  If  that horse won, the subscriber  with the  name of that winning horse got a prize.  The original  subscriber sold his ticket to Jones. The horse named on that  ticket won the race.  When Jones approached the organizers of  the race for payment, they refused  to pay.  Jones filed a suit  for recovery of the money. His suit was dismissed on the  ground that there was no privity between the organizers of the  race and Jones.  The court also held :-

"Though there may have been a valid  assignment, it was of a chose in action;  and the law does not permit the party  interested to sue on such a transfer."

       The views expressed correctly represent the law in this  country as well.           We are therefore of the view that the decision in H. Anraj

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incorrectly held that a sale of a lottery ticket involved a sale of  goods.  There was no sale of goods within the meaning of Sales  Tax Acts of the different States but at the highest a transfer of  an actionable claim. The decision to the extent that it held  otherwise is accordingly overruled though prospectively with  effect from the date of this judgment.      We accordingly answer the question referred to us as  indicated  above.  Let  the   matters  be   placed     before    an  appropriate Bench for disposal of the several appeals on  merits in the light of this judgment.