http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 29  

PETITIONER: H. ANRAJ ETC.

       Vs.

RESPONDENT: GOVERNMENT OF TAMILNADU ETC.

DATE OF JUDGMENT04/10/1985

BENCH: TULZAPURKAR, V.D. BENCH: TULZAPURKAR, V.D. MUKHARJI, SABYASACHI (J)

CITATION:  1986 AIR   63            1985 SCR  Supl. (3) 342  1986 SCC  (1) 414        1985 SCALE  (2)641  CITATOR INFO :  RF         1986 SC1863  (45)  R          1988 SC1814  (6)  R          1988 SC2038  (5)  D          1990 SC 820  (30,34)

ACT:      Sales  Tax  on  the  sale  of  lottery  tickets  -  The Tamilnadu General sales Tax Act, 1959 amending section 59(2) and the  West Bengal  Taxation Laws  (second amendment) Act, 1984 making  appropriate additions  to sections  5(1)  (aa), 5(1) (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 State Legislature and covered by entry 54 of List  II in  the Seventh  Schedule Concept  of a lottery, lottery ticket,  "goods",  "sale",  "movable  property"  and "immovable property"  - Whether the sale of a lottery ticket involves a  transfer of  property in  goods and  therefore a sale of  goods -  Constitution of India 1950, Article 36(12) read with  sections 2(j)  and 2(n) of the Tamil Nadu GST Act and sections  (d) and  (g) of the bengal Act section 2(7) of the Sale of Goods Act, section 3 of the Transfer of Property Act and section (26) of the General Clauses Act - Whether Ms 219  dated   31.3.194  of   the  Tamil  Nadu  government  is discriminatory and  violative of Article 14 and 34(9) of the Constitution.

HEADNOTE:      The subject  of  lotteries"  organised  either  by  the Government of  India 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 running  of lotteries  could be tone by the Government of  various States  only under  Article 258(1) of the Constitution  on entrustment  of that  function  by  the Union to  the concerned  State.  By  virtue  of  that  power entrusted to  them by Presidential orders, the Government of Tamil Nadu  and the  Government of  West Bengal  organised a State lottery  by sponsoring  a  haole  scheme  ant  framing appropriate Rules  in that behalf. me State Governments were also desirous  of levying  sales tax  on  the  sale  of  the lottery tickets  by placing  the incidence  thereof on every dealer selling such tickets within the State.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 29  

    In the  State of  Tamil Nadu, by a Notification GOP No. 77 state  January 28,  1984 issued  under section  59 of the Tamil Nadu  General Sales Tax Act, 1959 the State Government inserted an 343 Entry 163  in the  First Schedule to the Act whereby lottery tickets were  brought within  the purview  of the charge ant 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  later followed  by a  regular  legislative amendment made  in the  Act as  required by  section  59(2). Under the  Raffle scheme  80 promulgated,  the first sale of lottery  tickets   issued  thereunder   was  by   the  State Government of  Tamil Nadu  to various licenced agents, whole salers, stockists  etc.  ant  the  State  Government  became liable to  pay sales tax as the first dealer. Therefore, the Finance (Raffle)  Department of  the State Government issued Notification GOMs  No. 219  on March  31, 1984 bringing into force certain  arrangement where  under while  retaining the sale price  of the  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 toy was granted  to   the  purchaser.   Shri  H.  Anraj  the  common petitioner, in  both the  writ petitions filed under Article 32 of the Constitution, who has been carrying on business in the State  of Tamil  Nadu as  a dealer  in  lottery  tickets issued by  the Bengal  Government of  Bhutan, the  State  of Assam  and  various  other  lotteries,  has  challenged  the validity of  both the  levy of  sales TOY  on  the  sale  of lottery  tickets   as  also   the  exemption  granted  under Notification GOMs 219 dated 31.3.1984.      In West  Bengal, the  State Legislature promulgated the West Bengal  Taxation  Laws  (second  amendment)  Act,  1984 whereunder by  making  appropriate  amendments  (by  way  of additions) to  sections 5(1)(aa),5(1)(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 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 amendment w 8 brought into force  with effect from May 1, 1984. By a writ petition filed in the Calcutta high Court the appellants (being three petitioners who  carry on  business in  the State  of W  . t Bengal  as   agents  and   stockists  of  various  lotteries organized by  different States  including the  State of West Bengal changed 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 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 344 competence of  the State Legislature, as Entry 54 of List II in the Seventh Schedule authorises legislation levying sales tax only  on the  sale or  purchase of  goods";  the  matter ultimately went  before a Division Bench of that Court which by its  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  high  Court  came  to  the conclusion that  lottery tickets  were not actionable claims but "good" within the definition of that expression given in the Bengal Finance (Sales Tax) Act, 1941 and therefore, the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 29  

State Legislature  was competent  under Entry 54 of the List II to  enact the  concerned amendments  levying sales tax on the sale  of lottery  tickets. Hence  the appeal  by special leave.      The following  contentions were raised on behalf of the selling agents;  (i) the  levy of  sales tax  on the sale of lottery  is  not  valid  on  the  sole  ground  of  lack  of legislative 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 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  Legislature  has  purported  to  act  in  the exercise of  its own taxing power under Entry 54 of the List II, which  enables legislation imposing 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  levy 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 levy is outside Entry  54 of  List II; (iv) So far as the Madras Act is concerned  the State  Government’s Notification GOMs. No. 219 dated  March 31, 1984 is discriminatory and violative of Article 14  and Article 304 (a) of the Constitution inasmuch as thereunder the burden of sales 345 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  state which are being sold in the State of  Tamil Nadu  thereby  putting  the  sale  of  other lottery tickets  at a  serious disadvantage. The respondents 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  purchase of goods") Entry  62 of  List  II  (  Taxes  on....betting  and gambling )  must 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 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  in the  two Acts  as also  in the  Sale of Goods Act,  1930 and not purely an actionable claim; (iii) a sale of a lottery ticket confers on the purchaser two rights (a) a  right to  participate in  the draw and (b) a right to claim a  prize if  successful in  the draw  and  though  the latter may  be an  actionable claim  the former  constitutes beneficial interest  in the movable property (incorporeal in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 29  

character) in  possession of  the holder  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. GOMs. 219 dated March 31, 1984 the circumstance that the Tamil Nadu Government decided not  to  pass  on  the  sales-tax  to  the  purchaser  CAN’T 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  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 the  sales-tax  to  the purchaser of their lottery tickets.      Dismissing the  appeal and  allowing the writ petitions in part, the Court ^      HELD: (Per  Tulzapurkar, J.) 1.1 The Amendments made to the Tamil  Nadu General  Sales Tax  Act, 1959 and the Bengal Finance (Sales  Tax) Act, 1942 imposing a levy 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] 346      1.2  The  lottery  tickets  to  the  extent  that  they comprise the  entitlement to  participate in  the  draw  are "goods" properly  80 called,  squarely  falling  within  the definition of  that expression  as given  in the  Tamil Nadu Act, 1959  and the Bengal Act, 1941 and to that extent, they are not  "actionable claims"  and in  every sale  thereof, a transfer of property is involved. [373 G-H; 374 A]      1.3 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  that when  section 2(7)  of the  Sale of goods Act  defines "goods" as meaning "every kind of movable property  other   than  actionable  claims  and  money,  the expression "movable  property occurring  therein  must  mean property of  every description  except  immovable  property. Since  lottery  tickets  cannot  be  regarded  as  immovable property, but would, therefore, be immovable property and as such they will fall within the expression ’goods". [364 C-E]      2.1 Whether  by reason  of a  sale  of  lottery  ticket merely a  contractual document  come into existence or along with the  delivery of  such a  ticket to  the  purchaser  on payment of  price by  him some rights are transferred to the purchaser must depend upon the intention of the parties, the mode of  issued such  ticket and  the  rules  governing  the Raffle  Scheme.  Even  proceeding  on  the  assumption  that lottery ticket  are contractual  documents that  fact cannot militate against  the tickets being goods and certain rights thereunder being transferred to the purchaser. [365 D-F]      2.2 The  delivery of  a lottery ticket issued under the rules governing  the Raffle  Scheme in the instant case to a purchaser thereof  18 obviously not a mere contract creating an obligation  or right  in personam  between parties to it, but would be in the nature of a grant. [366 C-D]      2.3 It is well settled that rights and benefits arising under agreements  in the  nature of  a grant,  unless  or  a personal nature,  partake of  the character of personalty as opposed to  realty act  therefore, movable property, capable of being  assigned or  transferred. As  opposed to  personal rights, like  life, liberty  or reputation,  these would  be proprietory rights  and benefits  and  hence  includible  in property. In  the case  of agreements  in the  nature  of  a grant, the  right 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 29  

such rights  or benefits would also be assignable. 1366 D-E; 367 B-C] 347      Swami  Motor   Transport  (P)  Ltd.  and  Anr.  v.  Sri Sankeraswamigal Mutt  and anr [1963] Suppl- 1 SCR 282 at 306 - 307  m/s Anwar  khan Mehboob  & Co.  v.  State  of  Madhya Pradesh and ors., 1966] 2 SCR 40 at 49-52 distinguished.      2.4 In every Raffle Scheme based on the sale of lottery tickets, similar  to the  schemes sponsored by each of the‘e two State  in  this  case,  a  participant  is  required  to purchase a  lottery ticket  by paying  a price therefor (the face value of the tickets 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  thereof two  right (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  mo cable  property, the  former "in presenti", the latter  "in futuro  depending on  a contingency. Lottery ticket, not  as physical  articles, but as slips of paper or memoranda  evidence   not  one  but  both  these  beneficial interests 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. [367 D-F]      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 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 which is to materializes 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 lt from the time he has purchased the ticket and as such it would be a chose in possessing while the other would be an actionable claim or  a chose-in-action. Thus 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. When a purchaser purchases a lottery ticket he pays consideration (price) nor merely for the 348 right to  claim in  future a  prize in the draw but also for the right in presenti to participate in the draw, that is to say not  one but  two distinct rights are transferred to the purchaser  and   therefore,  the  contention  that  the  two together constitute  a single right cannot be accepted. [367 G-H; 368 A-d]      Jones v.  Carter, 8 Q.B. 134 = English Reports Vol. CXV pp. 825-826;  Kind v.  Connare &  Anr., 61  CLR 596  at  607 quoted with approval.      2.5 The  analogy of  capital issue  by  a  Joint  Stock Company is  wholly inappropriate.  The capital  issue  by  a Joint Stock  Company 18  governed by  the provisions  of the Companies Act  and Memorandum and Articles of Association of the company  (whereunder no  company  can  subscribe  to  or purchase its  own shares  since it  amounts to  reduction of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 29  

capital) whereas  the issue  of  lottery  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.  Moreover,  the 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 if successful) upon such buyer; if this be the true nature of the agreement it implies  that both  the right come into existence and are with the  promoter no  sooner a  Raffle Scheme together with the Rules governing it (Rules which fix the number 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 these rights are transferred upon  the sale  of the  ticket to the purchaser. The mere  fact that under the Rules the promoter 18 disabled from participating  in the  draw or from claiming a prize in such draw  does not  mean that  these right do not come into existence or  are not  with the  promoter before  the actual sale of the tickets to the buyer nor does lt mean that these right come  into existence  for the first time only upon the sale of  the ticket  to the  buyer. Such  disability imposed upon the  promoter by  the  Rules  18  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; 370 D-H; 371 A-D] 349      Further 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  licence  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. They  can also  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  to partlypate in  a draw  will have  to be  regarded as "goods properly so called. [371 D-H; 372 A]      United States v. Moulder, (178) (Second series) Federal Reports 593 at 594 quoted with approval.      2.6 It  is true  that this  entitlement to  a right  to particlepate in  the draw  is an  entitlement to beneficial interest which  18 of  incorporeal or  intangible nature but that cannot  prevent lt  from being  regarded as  goods.  If incorporeal right  like copy  right or  an intangible  thing like electric  energy can  be regarded  as goods expiable 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 regarded as ’goods’ for the purpose of levying sales tax.  Lottery tickets  which comprise such entitlement do  constitute   the  stock-in-trade  of  every  dealer  and therefore his  merchandise which  can be brought and sold in the market.  Lottery tickets  comprising  such  entitlement,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 29  

therefore would  fall within the definition of "goods" given in the Tamil Nadu Act and the Bengal Act. [372A; 373 L-G]      Commissioner of  Sales  Tax,  M.P.  v.  Madhya  Pradesh Electricity Board, Jabalpur, 11969] 2 SCR 939 applied.      A.V. Meiyappan  v.  Commissioner  of  Commercial  Taxes Madras , AIR 1969 Madras 284 approved.      (The  Court   applied  non-liquet  on  the  alternative submission 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.) 350      3.1 The impugned Notification GOMs. 219 dated March 31, 1984 issued by the State Government of Tamil Nadu is clearly violative of  Article 301  read with  Article 304 (a) of the Constitution. [374 C]      3.2 In A.T.B. Mehtab Majid and Co.’s case [1963] Suppl. 2 SCR  435, the  Supreme Court  held that taxing laws can be restrictions on  trade, commerce  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; that sales tax  of the kind under consideration could not be side to be  a measure  regulating any trade or a compensatory tax levied for the use of trading facilities; that the sales 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 of Article 304 but will be valid only  if it  comes within the terms of Article 304(a). Here, the  real question is whether the direct and immediate result  of   the  impugned  Notification  is  to  impose  an unfavorable and  discriminatory tax  burden on  the imparted goods (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 impugned Notification will  have  to  be  regarded  as  directly  and  immediately hampering free  flow of  trade, commerce  and  intercourse. Discriminatory treatment  in the matter of levying the sales tax on  i ported  lottery tickets  which are  similar to the ones issued  by the  State Government  so as  to hamper free flow of trade, commerce and intercourse is writ large on the face of the impugned Notification. 1378 D-H; 379 A]      Atiabari To  Co. Ltd.  y. The  State of Assam and Ors., [19611 1  SCR 809;  A.T.B. Mehtab  Majid and Co. v. State of Madras and  Anr., [1963]  Supp. 2  SCR 435;  A. Hajee  Abdul Shakoor and  Company. v.  State of Madras, [1964] 8 SCR 217; State of  madras v. N.K Nataraja Mudaliar, [1968] 3 SCB 829; Guruvaiah Naidu & Sons v. State of Tamil Nadu & Anr., 38 STC 565 followed.      (Per Sabyasachi Mukharji, J.) (Concurring)      1.1 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  property. In  other words  ,  both  these  Acts insist transfer of 351 property in goods. Article 366(12) of the Constitution gives an   inclusive  definition  of  "goods"  indicating  thereby goods" includes  all materials,  commodities  and  articles. Therefore, there  must be  transfer of property in the goods for a  price, the  concept has the same meaning which it has under the Sale of Goods Act, 1930- [379 E]      1.2 "Grant"  is an agreement of some sort which creates

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 29  

rights in  the grantee  ant  an  agreement  which  transfers rights may  be termed  as assignment,  but it cannot be said that such a grant/right, namely, the right to participate in the draw,  in the  facts  ant  circumstances  of  the  case, existed in the grantor. [379 G-H; 380 A]      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 promoters. 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 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 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 complexity 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 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 be regarded as dealer’s merchandise and  therefore goods  which are capable of being bought or sold in the market. [380 D-H; 381 A-D]      1.3 The analogy of capital issue by Joint Stock Company is not appropriate. [381 A]

JUDGMENT:      ORIGINAL JURISDICTION : Writ Petitions Nos. 435 and 436 of 1985. 352      (Under Article 32 of the Constitution of India)                             AND      Civil Appeal No. 4099 (NT) of 1984.      From the  Judgment and  Order dated  14.8.1984  of  the Calcutta high Court in Civil Rule No. 6431 (W) of 1984.      Soli J. Sorabjee, K. Srinivasan, N.B.B. Raju and Vineet Kumar for the Petitioners in W.P. No. 435 of 1985.      Y.S. Chitale,  Vineet Kumar  and K.  Srinivasan for the 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 1995.      K.K. Venugopal, Vimal Dave, Miss Kailash Mehta and Mrs. Neelam Kalsi for the Appellants in C.A. No. 4099 of 1984.      N. Gooptu  and H.K. Puri for the Respondent in C.A. No. 4099 of 1984.      The following Judgments were delivered :      TULZAPURKAR, J.  These Writ  Petitions  and  the  Civil Appeal raise a common 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 narrow  compass and  in the  writ petitions  the  question

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 29  

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  time  by  making  suitable amendments in  the Bengal Finance (Sales Tax) Act, 1941 with effect from May 1, 1984.      Indisputably  the   subject  of  "Lotteries"  organised either by  the Government of India 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 running of lotteries could be done by the Government of various 353 States only  under Article  258(1) of  the  Constitution  on 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:           "Now,  therefore,  the  President  is  pleased  to           permit the  Government of  Tamil Nadu to conduct a           state 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 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 Government. Pursuant 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 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  of  such tickets "at  the point  of first  sale in  the State".  This Notification was  later followed  by a  regular  legislative amendment made in the Act as required by s.59(2). Presumably this was  done in the exercise of its own independent taxing power under  Entry 54  of List II in the Seventh Schedule to the Constitution.  It seems  that under the Raffle Scheme so promulgated  the   first  sale  of  lottery  tickets  issued thereunder was  by the  State Government  of Tamil  Nadu  to various licensed  agents, whole  salers, stockists  etc. ant 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 354 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  H. 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 29  

the Royal  Government of  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  Notification  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 Presidential  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   whereunder   by   making appropriate amendments  (by way  of  additions  to  sections 5(1)(aa), 5(1)(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 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  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  that  a lottery tickets  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 II in the Seventh Schedule authorises legislation levying  sales tax  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 actionable claims but ’goods’ within the definition of that 355 expression given in the Bengal Finance (Sales Tax) Act, 1941 and,   therefore, the  State Legislature was competent under Entry 54  of List  II  to  enact  the  concerned  amendments Levying sales  tax on the sale of lottery tickets. Hence the appeal.      Counsel for  the dealers  have challenged  the levy  of sales tax  on the sale of lottery tickets imposed under both the enactments,  the Tamil  Nadu General Sales Tax Act, 1959 as amended  and the  Bengal Finance (Sales Tax) Act, 1941 as amended principally  on the  ground of  lack of  legislative competence on  the part of the concerned State Legislatures. Counsel  pointed  out  that  under  the  charging  provision contained in  both the  Acts (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 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 imposing  a tax,  inter alia, on "sale of goods" that it  is wellsettled  that the expression "sale of goods"

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 29  

has to  be construed in the sense which it has in the Indian Sale of  Goods Act,  1930  (vide  Ganon  Dunkerley’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 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 II.  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  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 Act is concerned Counsel for the  writ petitioners  raised a  further contention that the State Government’s Notification GOMs No. 219 dated March 31, 1984  was discriminatory  and violative  of Art.  14 and Art. 304(a) of the Constitution in as much 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 disadvantage. 356      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, apart from Entry 54  of List  II (’taxes  on the  sale or  purchase  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 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  lt is at that time that betting takes place and as  such the  impugned Amendments would fall under Entry 62 of  List II.  Of course, the learned Attorney General and counsel for  the State of West Bengal justified the impugned Amendments under  Entry 54  of List  II by contending that a lottery ticket  was "goods"  within the  definitions of that expression given  in the  two Acts  as also  in the  Sale of Goods Act,  1930 and  not  purely  an  actionable  claim  as contended for  by Counsel for the dealers and hence the levy on its sale was perfectly competent under that Entry, and in this behalf  the contention  in substance was that a sale of lottery ticket  confers on  the purchaser  two rights  (a) a right to  participate in the draw and (b) a right to claim a prize if successful in the draw and though the latter may be an  actionable   claim  the  former  constitutes  beneficial interest in  the movable property (incorporeal in character) in possession  of the holder of the ticket and hence ’goods’ capable of  being possessed  and bought  or sold. As regards the exemption  granted by  the Tamil  Nadu Government  under Notification No.  GOMs. 219  dated March  31,  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.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 29  

14 or  Article 304  inasmuch as  it is  open to a dealer not pass on  the burden to the purchaser and bear it himself and further it  18 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.      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 two  reasons. First,  if the  tax was  to be  levied  on betting and gambling the 357 charging event  ought to  have been  the organising  of  the lottery   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 is ’betting and gambling’ and it is well settled that the latter does not include lotteries organised by the  Government of  India or  the Government of the State which topic is specifically dealt with by the former (vide . Anraj v.  State of  Maharashtra, [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 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 Kerala State  Electricity Board v. Indian Aluminium Company, [1976] 1  S.C.R. 552.  In other words legislative competence if at  all would be under Entry 54 of List 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 on ’sale of goods’ it is necessary to appreciate the  real   concept  of   the  expressions  ’goods’  ’sale’, ’lottery’ and  ’lottery ticket’.  Section 2(j)  and 2(n) of the Tamil Nadu Act defines ’goods’ and ’sale’ thus:           "2.(j) ’Goods’ means all kinds of movable property           (other than  newspapers actionable  claims, stocks           and  shares   and  securities)  and  includes  all           materials,  commodities   and  articles;  and  all           growing crops,  grass or  things attached  to,  or           forming part  of the  land which  are agreed to be           served 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 or  another in  the course  of business for           cash   deferred    payment   or   other   valuable           considerations;"  (Other   clauses  give  extended           meanings which are not material). 358 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;           "2(g) ’sale’  means any  transfer of  property  in           goods  for  cash  or  deferred  payment  or  other

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 29  

         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 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           "  ‘Goods’ includes all materials, commodities and           articles;" and   Article   366(29A)   inserted   by   the   Forty-sixth Constitutional Amendment  Act, gives  an extended meaning to the concept  of ’sale  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 case and only clause (a) thereof is material Which runs thus -           "(29A) tax  on  the  sale  or  purchase  of  goods           includes           (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;      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 case), the true concept of ’sale of goods’ is  that there  must be a transfer of property in the goods for  a price,  that is to say the concept has the same meaning which it has under the Sale of 359 Goods Act  1930 and  secondly, the expression ’goods’ covers within  its   scope  every  kind  of  movable  property  but actionable  claims    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. In Webster’s Dictionary ’lottery’ is defined as  "a distribution  of prizes by lot or chance". In the Oxford  New English  Dictionary ’lottery’  is defined as "an arrangement  for the  distribution of  prizes by  chance among persons  purchasing tickets".  In Archibold’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  Black’s  Law  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 determined predominantly by           chance." (Based  on State v. Wassick, W.Va.), 191,           S.E. 2nd 283,288. In Edward  H. Horner v. United States 37 Law Ed. 237 at 241, the Supreme  Court of the United States quoted with approval the following  definition  of  ’lottery’  contained  in  the Century Dictionary:           "A scheme  for raising money by selling chances to           share  in   a   distribution   of   prizes;   more           specifically, a  scheme for distribution of prizes           by chance  among persons  purchasing tickets,  the           correspondingly   numbered    slips    or    lots,           representing prizes  or blanks, being drawn from a

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 29  

         wheel on  a day previously announced in connection           with the scheme of the intended prizes. In law the           term   ’lottery’    embraces   all    schemes   of           distribution of  prizes by chance, such as policy-           playing, gift exhibitions, prize concerts, raffles           at fairs,  etc.  and  includes  various  forms  of           gambling." (Very  passage has  been  annotated  in           ’Words and  Phrases’ 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: 360           "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,  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:           "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. Nor           is the  combination  of  consideration  and  prize           sufficient alone."      Reliance was  also placed  on three  English decisions, namely Bartlett  v. Parker and Ors., (1912) 2 K.B. 497, Hall v. McWilliam,  (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 these cases the occasion 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 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 High  Court in  Sesha Ayyar  v. Krishna Ayyar, A.I.R. 1936 Madras  225, where  in  the  context  of  the  question whether a Kuri Chit 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.      Coming to  the lottery  ticket counsel pointed out that the dictionary  meaning of  the word  ’ticket’ is "a printed card or a 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 29  

         participate in  pool. : Finster v. Keller, 96 Cal.           Reptr. 241,249, 18  C.A.3d 836. Further counsel  pointed out  how the  term ’ticket’  in the context of lottery has been explained in the same volume 25A at page 491, namely, "The term ticket’, when speaking of the sale of   lottery tickets  is equivalent to chances. Saloman v. State 27 Ala.  26-30 3.      Counsel also  strongly relied  upon  Justice  Cornish’s observation in  the Full Bench decision of Madras High Court in   Sesha Ayyar   v.   Krishan Ayyar (supra) to the effect, Tickets of   course  are   only the  tokens  of  the  chance purchased, and  it is the  purchase  of this chance which is the essence  of a  lottery.   Relying upon   the   aforesaid material counsel  contended   that   a  lottery ticket  will have to  be regarded  merely as  a slip    of    paper    or memorandum   evidencing the  right of  a holder  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  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  ticket  is nothing more  than a  sale  of a  chance  to win a prize and no transaction of sale of  movable property  takes  place or is involved in the sale  of  a  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  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 made an alternative submission. It was urged that 362 assuming without admitting that lottery tickets are regarded as a kind of a  movable property or some kind of merchandise they would  be 80  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 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  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           relief either -           (1) as to unsecured debts or           (2) as  to beneficial interest in movable property           in   possession, actual  or constructive - whether           present   or   future, conditional  or contingent.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 29  

         (p.805) Reliance  was also placed upon the decision in United States v. Mueller,   178  (2d series)  Federal Reports  593 at 594, where  the following passage occurs:           "Conceding  without deciding, that lottery tickets           are merchandise,  they are  such only in a limited           sense. In  a   general sense  they are more in the           nature of  chooses 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).      Similarly, counsel  relied upon  an English decision in Jones v. Carter, 8 Q.B. 134 English Reports Vol. CXV pp.825- 826  where  Lord  Denman,  C.J.,  took  the  view  that  the assignment of  a   ticket in   a  Derby  Sweepstake  was  an assignment of  a chose  in action   (a decision annotated in Halsbury’s Laws  of England,  Fourth Edition, Volume  6 para 8(2) and  in Stroud’s  Judicial  Dictionary  Fourth Edition, Volume I at page 460 under the heading ’chose in 363 action’).  lt was submitted that a lottery ticket  possesses the   same character  and would  therefore, be  a  chose-in- action.   Similarly,   it   was pointed  out that in King v. Connare  &  Anr.,  61 C.L.R.  596 at 607, Latham, C.J., also took the  view that  when   a person   buys a lottery ticket from the  conductor of   the  lottery there is an assignment 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 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 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    are present the  scheme or  the   transaction  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  essentials  of  a lottery  came  to be considered in  the context   of   the   question  whether  a Kuri  Chit Fund was a lottery or not.  In  the  case, before us the  issue is a 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  lottery ticket,   which  unquestionably   involves the sale of  a chance  to win  a prize,   is something  / re and comprises transfer  of property  in  goods  and therefore  a sale of goods or not, 80 that a tax could be  levied thereon

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 17 of 29  

under   Entry 54  of List  II and  in order to  decide  this question the  true concepts  of  ’goods’,  ’sale’,  ’movable property’ and ’immovable property’ would be most material. 364      Sec.2(7) of  the Sale  of Goods  Act defines ’goods’ as meaning  "every   kind  of   movable  property   other  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,, growing crops  or  grass  and  is,  therefore  not  of  much 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    permanently  fastened    to anything   attached to  the  earth    ,    while    ’movable property’ is defined in s.3(36) thus:           "Movable property"   shall  mean property of every           description, except immovable property. It   is thus clear that when .2(7) of the Sale of Goods  Act defines  ’goods’ as meaning ’every kind of movable  property other than  actionable  claims  and money’,  the  expression ’movable property’  occurring therein  must mean property of every   description   except immovable  property. Now  it is obvious  that     lottery  tickets  can  by  no  stretch  of imagination be  regarded as  immovable property   but would, therefore, be  movable property  and   as   such these  will fall within  the expression  goods .  Of  course,  questions whether these  tickets constitute  goods properly 80  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 will  be   considered  presently.  But  it  cannot  be disputed that  as opposed  to   immovable    property  these tickets would  be movable  property   and    would  normally qualify to fall within the expression "goods .      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 8.3 of the Transfer  of  Property Act which runs thus:           "Actionable   claim   means a  claim to any  debt,           other than   a   debt    secured  by  mortgage  of           immovable   property   or    by  hypothecation  or           pledge of  movable property,  or to any beneficial           interest  in   movable   property   not   in   the           possession, either actual or  constructive, of the           claimant, which  the Civil  Courts   recognise  as           affording grounds for relief, whether such debt or           beneficial   interest   be   existent,   accruing,           conditional or contingent. 365 This  definition as analysed in Mulla’s Transfer of Property Act  (at  page 05 of the 6th Edition 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    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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 18 of 29  

properly  so called or whether these are actionable claims?      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 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  merely   a contractual document come  into existence  or along   with the  delivery of such a ticket to the purchaser  on  payment  of price  by him some  rights are  transferred to  the   purchaser   must depend   upon the  intention of  the parties,  the mode   of issuing such   ticket   and  the Rules governing the  Raffle Scheme.   Even proceeding  on the  assumption  that  lottery tickets  are  contractual  documents    that    fact  cannot militate against  the   tickets   being goods   and  certain rights thereunder  being  transferred  to  the purchaser. In almond’s Jurisprudence  12th Edition at pages  338-339 under the heading  ’The Classes  of Agreements’,  the    following passage occurs:           "Agreements are divisible into three classes, for,           they either  create rights,  or transfer  them  or           extinguish them.   Those  which create  rights are           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  18  an  agreement  which           creates a   right   of    any  other  description;           examples  being  grants  of leases, easements, 366           charges,   patents, franchises,  licences  and  so           forth. An agreement which transfers a right may be           termed  generically   an  assignment.    On  which           extinguishes a right is a  release,  discharge, or           surrender.           It   often happens that an agreement is of a mixed           nature,   and so falls within two or more of these           classes   at   the same  time. Thus  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. The delivery  of a  lottery ticket  issued under  the  Rules governing the  Raffle Schemes  in  the  instant  case  to  a purchaser thereof  is obviously not a mere contract creating an obligation  or right   in  personam between parties to it but as  explained hereafter   would  be in  the nature  of a grant.      Dealing with  agreements 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, Lovable property,  capable  of  being assigned or transferred. As   opposed   to   personal rights, like life, liberty or reputation these would be  proprietory rights and benefits and  hence includible  in property    according  to Salmond’s Jurisprudence  (see para  108 at page 412 of  12th Edition   under  the heading ’Proprietory rights -  Dominium

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 19 of 29  

and status’).  Counsel for  the dealers, however, urged that this Court  has taken the view that benefits arising under a contract are  not proprietary  rights and  therefore, do not constitute property and in  this  behalf reliance was placed on two   decisions,  namely, Swami  Motor Transport (F) Ltd. and Anr.  v. Sri   Sankaraswamigal  Mutt   and  Anr., [1963] Suppl. 1  S.C.R. 282  at 306-307   and    Ml.  Anwar    Khan Mehhoob   Co. v.  State of Madhya  Pradesh  and  Or., [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 site  conferred upon a tenant having his super-structure on   the land  under section  9 of  the Madras 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  from  a statute could  not obviously  expand its content or make  it any-the-less a non-proprietory right; the Court held that a 367 statutory right  to apply  for the  purchase of the land was not   a.   right  of  property. In the latter case the Court took   the   view that  a right  to go  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  contract    which 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 save  on  performing his part of the contract  and  in  fact  such rights  or  benefits would also be  assignable.   Counsel   for    the  dealers  fairly conceded the  position that where under a contract, a  party on the  performance of his part of the contract is  entitled to   some  emoluments or benefits then  such  emoluments  or benefits under the contract would constitute property.      It   cannot be  disputed that  in every  raffle  scheme based   on 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 ticket) 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    continent    upon  his  being successful in    the    draw.    Both  would  be  beneficial interests in movable property, the former ’in present’,  the latter ’in  future’ depending  on   a   contingency. Lottery tickets, not as physical articles, but as slips of  paper or memoranda  evidence   not  one  but  both  these  beneficial interests 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 but the  two  together constitute one single right.  It  is  not possible to  accept this  contention for  the simple  reason that the  two entitlement   which arise on the purchase of a

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 20 of 29  

lottery   ticket are   of a different character, inasmuch as the right  to  participate  arises in presenting, 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 368 which   is   to materialism 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 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 King v- Connare (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 extent  it is no transfer of an  actionable claim;  to  the  extent that it involves a transfer of  the right  to claim  a prize   depending  on  a chance it will be an assignment of an actionable claim      That   when  a purchaser purchases a lottery ticket  he pays consideration (price) not merely for the right to claim in future  a prize  in the  draw but  also for  the right in presenting to  participate   in the  draw will be clear from certain passages  based  on decided cases annotated in words and Phrases,  Permanent   Edition Vol.  25A, which  we would like to extract:           " ’Lottery’,  in accordance  with public usage, is           scheme or   plan  for distribution  of  prizes  by           chance among  those   paying or  agreeing  to  pay           consideration for  right of participation (City of           Wink    v.    Griffith  Amusement  Co;  100  W  2d           695, 698,699,700,701, 129 Tex.40.) (at page 460.)           "A ’lottery’  or scheme in the nature of a lottery           is a  plan  in which a price 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).           "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 participation in such scheme.           (New Orleans  v. Collins,  27 So.  532, 536, 52 La           Ann, 973) (at p. 468), 369           "Three things  must concur to establish a thing as           a   ’lottery’: A  prize or  prizes; the  award  or           distribution 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 participating." (Robb & Rowley 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 constitute a single right-      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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 21 of 29  

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 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  said  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  Edition of  Kanga & Palkhivala’s Law  and  Practice  of  Income  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 in their           own right  and not  as nominees  of company  A,  a           question arises  as to  whether those shareholders           are liable  to tax under the head "capital gains".           No  such   tax  would   be  payable   unless   the           amalgamation involves  (a) a  transfer, or  (b)  a           sale, or  (c) an exchange, or (d) a relinquishment           of the  asset or  (e) the  extinguishment  of  any           rights therein  (s.2(47)). It  is clear  that such           amalgamation 370           does not  involve any  transfer  or  sale  of  the           shares There  is no  transfer of any assets by the           shareholders  of  company  A  to  company  B;  the           transfer of shares by company A cannot be regarded           as a  transfer by  its shareholders.  Nor is there           any transfer  by company when it allotes its share           capital to  the shareholders  of  company  A.  The           allotment  of   shares  by  a  company  cannot  be           regarded  as   a  transfer  of  property  by  that           company. As  Lord Greene  MR observed  in Re V G.M           Holdings Ltd..  [1942] 1  ALL ER 224, 226 (CA): "A           share is  a chose  in action.  A chose  in  action           implies the  existence of  some person entitled to           the rights, which are rights in action as distinct           from rights in possession, and, until the share is           issued, no  such person  exists. Putting  it in  a           nutshell, the  difference between  the issue  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." The contention  so put  forward is  in my  view without  any substance. In  the first  place the capital issue by a joint stock company is governed by the provisions of the Companies Act and  Memorandum  and  Articles  of  Association  of  the company (whereunder  no company can subscribe to or purchase its own  shares since  it amounts  to reduction  of capital) whereas the  issue of lottery 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  is   wholly inappropriate. Secondly,  the learned  authors were  dealing

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 22 of 29  

with the  case of  amalgamation  of  two  companies  in  the context of  ’capital gains tax’, while the learned Law Lord, as  the  Report  of  the  case  shows,  was  concerned  with construing 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 words both the cases are  in different  context  altogether.  Moreover,  as discussed earlier the 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 if successful) upon  such buyer;  if this be the true nature of the agreement  it impliesplies  that both  the rights  come into 371 existence and  are with  the promoter  no  sooner  a  Raffle Scheme together with the Rules governing it (Rules which fix the number  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 these rights are transferred upon the sale of the ticket to the  purchaser. The  mere fact  that under  the rules the promoter ter  is disabled  from participating in the draw or from claiming  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 time only upon  the sale  of the  ticket to the buyer as urged by counsel for  the dealers.  Such disability  imposed upon the promoter by  the Rules  is necessary to create confidence in the participants  about  the  promoter’s  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, therefor, rejected.      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  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  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 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. 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 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 372

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 23 of 29  

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  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 was ’goods’ within the  meaning Of C.P. & Bearer Sales Tax Act, 1947 and the Madhya Pradesh General Sales lax 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 TLC Court observed thus:           " What  was essentially  to  be  seen  18  whether           electric energy  18 ’goods  within the  meaning Of           relevant  provisions   of  the   two   Acts.   The           definition in  terms 18  very  wide  according  to           which  ’goods’   means  all   kinds   of   movable           property...... The  term  movable  property’  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, lt cannot           cease to  be movable  property when lt has all the           attributes of  such property.  It is  needless  to           respect  that   lt  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 .. If           there can  be sale and purchase of electric energy           like any other movable object we see no difficulty           in holding that electric energy was intended to be           covered by  the definition  of ’goods  in the  two           Acts. If  that had  not been the case there was no           necessity  of   specifically  exempting   sale  of           electric energy  from the  payment of sales tax by           making a  provision for lt in the Schedules to the           two Acts." 373      Similarly  in   A.V.  Meiyappan   v.  Commissioner   of Commercial Taxes,  Madras, A.I.R. 1969 Madras 284, the owner or producer  of 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 arose 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 lt  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 24 of 29  

’goods’ under  s.2(j) of  the Madras  General 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  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  Devi v. Dwarka 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 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.      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 374 as given  in the  Tamil Nadu  Act, 1959  and the Bengal Act, 1941,   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  List  II  in  the  Seventh Schedule and  therefore, we  think it unnecessary to go into the validity  of the  alternative  submission  made  by  the learned Attorney  General that  legislative  competence  for enacting the  impugned Amendments  would also be there under Entry  62  of  List  II  in  the  Seventh  Schedule  of  the Constitution.      Having thus  disposed of  the main contention raised on behalf of the dealers, we shall now proceed to deal with the challenge to  the exemption Notification GOMs. No. 219 dated March 31,  1984 issued by the State Government of Tamil Nadu which is  alleged to  be violative  of Articles 14, l9(1)(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 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 h 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 25 of 29  

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 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 licensed dealer or to the purchaser. The Notification runs thus:      FINANCE (RAFFLE) DEPARTMENT G.O.Ms. No. 219                            Dated : 31.3.1984                                         Panguni 18, Ruthrodh                                          kari, Thiruvalluver                                                    Andu 2015 375             R E A D  G O P No. 77 Dt. 28.1.1984.           "In the  G .O.  read above,  the  Government  have           ordered the  LEVY of  Sales-tax at 20 single point           on the  sale 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 above their face value to the extent of sales-           tax surcharge  and additional surcharge payable on           the  sales.  The  position  was  reviewed  by  the           Government with  a view  to reducing the burden of           tax on  Tamil Nadu  Raffles  which  is  not  being           passed on  to the  buyers in  addition to the face           value. The  Government have decided that the Tamil           Nadu Raffle  Tickets shall  continue to be sold at           their face  value even  after the  levy of tax and           that sale  price (face  value) shall include sales           tax,  sur-charge   and  additional   surcharge  as           applicable.           2. The  Government accordingly direct that all the           Tamil Nadu  Raffle tickets  (whether  ordinary  or           bumper draws)  shall be  sold at  their respective           face values  only which  will  include  sales-tax,           surcharge and  additional 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 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.           5. The Commissioner of Raffle is requested to give           wide publicity on these orders immediately.                                   (By Order of the Governor)                                              C. Ramachandran                         Commissioner and Secretary to Govt."      According to  the petitioners the arrangement under the Notification is that the Raffle Department of the Government of  Tamil   Nadu  pays  the  tax  to  the  Commercial  Taxes Department of  the Government  of Tamil  Nadu and the tax is not passed on to the 376 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  Governments  within  the State are at a great disadvantage as compared to the sale of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 26 of 29  

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 o 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 Notification 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 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 read with the 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:-           "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 manufactured  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  of tax  legislation came  up for  consideration before this Court 377 and urged  that in  view of the settled position in law that 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 Atiabari Tea Co. Ltd. v. The State of Assam ant Ors. [1961] 1  S.C.R. 809,  Firm A.T.B.  Mehtab Majid  ant Co. v. State of  Madras ant  Anr. [1963]  Suppl. 2  S.C.R. 435,  A. Hajee Abdul Shakoor ant Company v. State of Madras, [1964] 8 S.C.R. 217,  State of  Madras  v.  N.K.  Nataraja  Mudaliar, [1968] 3  S.C.R. 829  and V. Guruvaiah Naidu & Sons v. State of Tamil  Nadu ant  Anr. 38  S.T.C.. 565 and counsel pointed out that  as a  result of these decisions the legal position has been  well settled  that freedom  of trade, commerce and intercourse guaranteed  by Article 301 includes freedom from tax laws  if such  tax laws,  not being  of compensatory  or regulatory nature  directly and immediately impede or hamper the free  flow of trade, commerce and intercourse throughout the  territory  of  India  and  that  if  such  law  accords discriminatory treatment to goods imported from other States as compared to similar goods manufactured or produced in the State the same would be clearly violative of Art. 304(a) and since in  the instant  case such situation obtains under the impugned Notification  the same  will have to be struck down as being violative of Art. 304(a).      I find  considerable force  in the aforesaid contention

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 27 of 29  

of counsel  for the  writ petitioners.  It is unnecessary to deal with  all the  decisions cited  by counsel  but it will suffice if  reference is made only to the decision in A.T.B. Mehtab Majid  and Co.  ’8 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 Madras 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  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 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 66.3 and 5 of the Act, and (d) that the impugned Rule was not 378 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  taxing  laws  can  be restrictions on  trade, commerce  and intercourse,  if  they hampered free flow of trade and if they are not what cal. be termed to  be compensatory  tax or  regulatory measure; that sales  tax of the kind under consideration could not be said to be  a measure  regulating any trade or a compensatory tax levied for the use of trading facilities; that the sales 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 only  if it  comes within the terms of Article 304(a). The Court  finally held the impugned Rule 16(2) invalid. m e instant case is on all fours of this decision.      The only answer given to the aforesaid challenge by the State Government  in its  counter affidavit  sworn by Mr. M. Kandaswamy Deputy Secretary to the Government is that in the case of  Tamil Nadu  Government lottery  tickets  the  State Government  are  the  first  dealers  as  well  as  the  tax collecting authority  while in  the case of imported tickets the tax  element is  not to be borne by the State Government since they  are not  the first  sellers of those tickets 2nd that if  this distinction  is kept  in view  there cannot be violation of  Article 301  read with  Article 304(a)  of the Constitution; further  it is also stated that in the case of sales of  Tamil Nadu  Government lottery  tickets the  State Government are  the first  sellers and  as such they have to bear the  tax on  the sale  of such  tickets and  it is well settled that  it is open to such first,seller either to pass on the  tax and  collect it  from the  buyer or  to bear the liability himself 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  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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 28 of 29  

(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  impugned Notification will have to be regarded as directly and 379 immediately hampering  free  flow  of  trade,  commerce  and inter-   course. Discriminatory  treatment in  the matter of levying 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, 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 Constitution.      In the  result I  uphold the  validity of  the impugned Amendments made  in the  two enactments,  namely, Tamil Nadu General Sales  Tax Act,  1959 and West Bengal Finance (Sales Tax) Act  1941 but  I strike  down the impugned Notification GOMs No.  219 dated  March 31,  1984  issued  by  the  State Government of  Tamil Nadu.  The writ  petitions  are  partly allowed  while   the  civil  appeal  is  dismissed.  In  the circumstances I  direct the parties to bear their respective costs.      SABYASACHI MUKHARJI,  J. I  have had  the advantage  of reading 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 property. In other words, both these Acts insist on transfer  of property  in goods.  Article 366(12)  of the Constitution  gives   an  inclusive  definition  of  ’goods’ indicating   thereby   "’goods’   includes   all   material, 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  has under the Sale of Goods act, 1930.      It was urged before us on behalf of the dealers that by the issue  of lottery  tickets, the  right to participate in the draw  is 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 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 right may be termed as assignment. But the  question, is.  before the  grant was  such a right, namely the right to 380 participate in  the draw, existing in the grantor? The point made is  that there  is no  transfer of property involved in the issue of a lottery ticket and it is only after the issue of the  lottery ticket  that the  grantee sets  a  right  to participate. In  other words, it was sought to be urged that in a  lottery, the  promoter sponsoring it does not have any right to  participate nor  to claim  a prize  in a  draw and these come into existence for the first time by the purchase of lottery ticket when he purchases the ticket and therefore it cannot  be said  that any  transfer of right is involved,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 29 of 29  

but only  creation of  new right by the grantor in favour of the Grantee.      I respectfully  agree with  my learned brother that the passage relied  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  ter  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 of the ticket, there is no transfer  of the  same property namely the property which existed in  the grantor namely 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-guarantee  is involved in the sale of  a lottery ticket but is it the transfer of the same right which  the promoter  ter 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.      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.      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. 381      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  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 con 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- S.R.                Petitions allowed and Appeals dismissed. 382