# MIS. SUNRISE ASSOCIATES v. GOVT. OF NCT OF DELHI AND ORS

- **Citation:** [2006] Supp. 1 S.C.R. 421
- **Court:** Supreme Court of India
- **Decided:** 2006-04-28
- **Case number:** Civil Appeal No. 4552 of 1998
- **Bench:** Ruma Pal, B.N. Srikrishna, S.H. Kapadia, Traun Chatterjee B, P.P. Naolekar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mis-sunrise-associates-v-govt-of-nct-of-delhi-and-ors-21316
- **Pages:** 23

## Headnote

Delhi Sales Tax Act, 1975;
Lottery tickets-Whether goods-Sale of-Liability to sales tax-Held, C
sale of a lottery ticket amounts to the transfer of an actionable claim and
as such it is not a sale of goods for the purposes of the sales tax laws-Article
366(29A)(a), Constitution of India-Sections 3 and 130 of the Transfer of
Property Act, 1882.
On the question whether sales tax can be levied by States on the sale of
lottery tickets, a Bench of two-Judges has held in H. Anraj v. Government of
Tamil Nadu, [1986] I SCC 414, that a lottery involved (i) the right to
participate in the lottery draw, and (ii) the right to win the prize, depending
D
on chance. The Judges were of the opinion that while the second right was a
chose in action and therefore not 'goods' for the purpose of the levy of Sales E
Tax, the first was a transfer of a beneficial interest in moveable goods and
was a sale within the meaning of Article 366(29-A)(d) of the Constitution and
consequently subject to sales tax. Against the decision of the High Court of
Delhi dated 17th July, 1998 in Haryana State Lotteries v. Govt. of NCT, (1998)
46 DRJ 397 disposing of a series of writ petitions construing H. Anraj and F
holding that lottery tickets were goods and are liable to sales tax under the
Delhi Sales Tax Act, 1975, several appeals have been filed before this Court.
In the appeal preferred by Sunrise Associates, the order of reference was
made on the prima facie view that there was no good reason to split a lottery
into two separate rights and, therefore, the judgl!Jent in H. Anraj
reconsideration. Since in the case of Vikas Sales Corporation v. Commissioner G
of Commercial Taxes, (supra), a Bench of three-Judges had agreed with the
decision of H. Anraj, it was necessary that the appeal had to be heard by a
Constitution Bench.
The appellants, who are dealers in the sale of lottery tickets, have
~I
H
422
SUPREME COURT REPORTS [2006] SUPP. I S.C.R.
A contended that H. Anraj wrongly drew a distinction between the right to
participate in the draw and chance to win the prize. Such bifurcation was
artificial as both were part of the same transaction. It was further contended
that even on the "two rights" theory each of those rights would be chose in
action. As far as the decision in Vikas Sales is concerned, it was contended
B that the additional reason given namely, free transferability for holding that
a particular thing was goods, was erroneous. It was pointed out that even
actionable claims such as negotiable instruments and debentures may be freely
transferable. As far as the DEPB is concerned, according to the appellants, it
was in the nature of a notional credit which an exporter acquires on export by
way of an entry in a passbook. This credit was utilizable by the importer to be
C adjusted against the import duty payable on goods imported. The credit was
freely transferable but it could not be said to be goods only by that reason. At
best it was an actionable claim. According to some appellants, the right to
participate in a draw which was held to be a sale of goods by H. Anraj was
only a right to service rendered by the lottery organizers. There was no
transfer of any moveable property in the entire transaction. It was also
D submitted that when there were divisible elements in a contract, the
predominant element would determine the nature of the right. As far as lottery
tickets were concerned, the right to participate in the draw was
overwhelmingly dominated by the element of the right to claim the prize by
the prize winner. It was contended that value wise the prize money constituted
E 90% of the total amount collected from the purchasers whereas the value of
~he right to participate would be limited to the administrative expenses for
holding the draw which accounted for the balance 10% of the monies
collected.
The State Governments have not taken consistent stands. The
F Government of the National Capital Territory of Delhi advanced the very
arguments which

## Text

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MIS. SUNRISE ASSOCIATES
A
v.
GOVT. OF NCT OF DELHI AND ORS.
APRIL 28, 2006
[RUMA PAL, B.N. SRIKRISHNA, S.H. KAPADIA, TRAUN CHATTERJEE
B
AND P.P. NAOLEKAR, JJ.]
Delhi Sales Tax Act, 1975;
Lottery tickets-Whether goods-Sale of-Liability to sales tax-Held, C
sale of a lottery ticket amounts to the transfer of an actionable claim and
as such it is not a sale of goods for the purposes of the sales tax laws-Article
366(29A)(a), Constitution of India-Sections 3 and 130 of the Transfer of
Property Act, 1882.
On the question whether sales tax can be levied by States on the sale of
lottery tickets, a Bench of two-Judges has held in H. Anraj v. Government of
Tamil Nadu, [1986] I SCC 414, that a lottery involved (i) the right to
participate in the lottery draw, and (ii) the right to win the prize, depending
D
on chance. The Judges were of the opinion that while the second right was a
chose in action and therefore not 'goods' for the purpose of the levy of Sales E
Tax, the first was a transfer of a beneficial interest in moveable goods and
was a sale within the meaning of Article 366(29-A)(d) of the Constitution and
consequently subject to sales tax. Against the decision of the High Court of
Delhi dated 17th July, 1998 in Haryana State Lotteries v. Govt. of NCT, (1998)
46 DRJ 397 disposing of a series of writ petitions construing H. Anraj and F
holding that lottery tickets were goods and are liable to sales tax under the
Delhi Sales Tax Act, 1975, several appeals have been filed before this Court.
In the appeal preferred by Sunrise Associates, the order of reference was
made on the prima facie view that there was no good reason to split a lottery
into two separate rights and, therefore, the judgl!Jent in H. Anraj
reconsideration. Since in the case of Vikas Sales Corporation v. Commissioner G
of Commercial Taxes, (supra), a Bench of three-Judges had agreed with the
decision of H. Anraj, it was necessary that the appeal had to be heard by a
Constitution Bench.
The appellants, who are dealers in the sale of lottery tickets, have
~I
H
422
SUPREME COURT REPORTS [2006] SUPP. I S.C.R.
A contended that H. Anraj wrongly drew a distinction between the right to
participate in the draw and chance to win the prize. Such bifurcation was
artificial as both were part of the same transaction. It was further contended
that even on the "two rights" theory each of those rights would be chose in
action. As far as the decision in Vikas Sales is concerned, it was contended
B that the additional reason given namely, free transferability for holding that
a particular thing was goods, was erroneous. It was pointed out that even
actionable claims such as negotiable instruments and debentures may be freely
transferable. As far as the DEPB is concerned, according to the appellants, it
was in the nature of a notional credit which an exporter acquires on export by
way of an entry in a passbook. This credit was utilizable by the importer to be
C adjusted against the import duty payable on goods imported. The credit was
freely transferable but it could not be said to be goods only by that reason. At
best it was an actionable claim. According to some appellants, the right to
participate in a draw which was held to be a sale of goods by H. Anraj was
only a right to service rendered by the lottery organizers. There was no
transfer of any moveable property in the entire transaction. It was also
D submitted that when there were divisible elements in a contract, the
predominant element would determine the nature of the right. As far as lottery
tickets were concerned, the right to participate in the draw was
overwhelmingly dominated by the element of the right to claim the prize by
the prize winner. It was contended that value wise the prize money constituted
E 90% of the total amount collected from the purchasers whereas the value of
~he right to participate would be limited to the administrative expenses for
holding the draw which accounted for the balance 10% of the monies
collected.
The State Governments have not taken consistent stands. The
F Government of the National Capital Territory of Delhi advanced the very
arguments which had been made, considered and rejected in H. Anraj 's case.
It was submitted that the reasoning in H. Anraj did not require
reconsideration. It had held the field for several decades and had been followed
in a number of cases. It was submitted that a lottery ticket represents a
G commodity within the meaning of Article 366(12).
The State of Tamil Nadu on the other hand submitted that the lottery
ticket itself was a chattel or goods and, therefore, falls squarely within the
net of taxation under the Tamil Nadu Sales Tax Act. It was submitted that
there can be a value addition to the lottery tickets by valuing all the rights
H accruing to the holder of the ticket, but these additional rights did not detract
SUNRISE ASSOCIATES v. GOVT. OFNCT OF DELHI
423
from the fact that the lottery ticket itself is an item of merchandise and liable A
to be sold as such. Reliance was also placed on the General Clauses Act with
regard to the definition of moveable property. It was contended that since a
lottery ticket was not immoveable property it was moveable property and,
therefore, goods.
The State of Maharashtra addressed on the question whether the sale B
of a Duty Entitlement Pass Book (DEPB) should attract sales tax under the
Bombay Sales Tax Act, 1959. It was submitted that considering the valuable
right conferred by the DEPB, it is an item of movable property and therefore
'goods' within the definition of the word in Section 2(13) of the Act. The
definition in common with other State Sales Tax Acts includes every kind of C
movable property other than actionable claims and money. It was submitted
that "actionable claim" as defined in Section 3 of the Transfer of Property
Act, is substantially different from the concept of "chose in action" in English
law and it was submitted that what is a 'chose in action' was not necessarily
an actionable claim. The reasoning in Vikas Sales was urged to be reaffirmed.
The other appearing States have adopted the arguments made on behalf of the D
NCT, Delhi and Tamil and Maharashtra.
Answering question referred to it, the Court
HELD: 1.1. The sale of a lottery ticket amounts to transfer of an
actionable claim and as such it is not a sale of goods for the purposes of the E
sales tax laws. A lottery ticket has no value in itself. It is a mere piece of
paper. Its value lies in the fact that it represents a chance or a right to
conditional benefit of winning a prize of a greater value than the consideration
paid for the transfer of that chance. It is nothing more than a token or evidence
of this right. There is no value in the mere right to participate in the draw F
and the purchaser does not pay for the right to participate. The consideration
is paid for the chance to win. There is, therefore, no distinction between the
two rights. The right to participate being an inseparable part of the chance to
win is therefore part of an actionable claim. (440-C-D; 441-H; 442-A)
H. Anraj v. Government of Tamil Nadu, (1986) 1 sec 414, partially G
overruled.
Vikas Sales Corporation and Anr. v. Commissioner of Commercial Taxes
and Anr., [1996] 4 SCC 433; The State of Madras v. Gannon Dunkerley &
Co. ltd., (1958] SCR 379; United States v. Mueller, (1942) I ELR 224; Said
v. Butt, (1920) 3 KB 497; in· B.R. Enterprises v. State of UP. and Ors., (1999) H
424
SUPREME COURT REPORTS (2006] SUPP. I S.C.R.
A 2 sec 100, referred to.
Tata Consultancy Services v. State of Andhra Pradesh, (20051 1 SCC
308; Jaffer Meher Ali v. Budge-Budge Jute Mills Co., (1906) 33 Cal. 702;
Bharat Nidhi Ltd. v. Takhatmat, (1969] 1 SCR 595; Union of India v. Sarada
Mills, (1972] 2 SCC 877, 880; State of Bihar v. Maharajadhiraja Sir
B Kameshwar Singh, (19521 SCR 889, 910; Official Trustee, Bengal v. L.
Chippendale, AIR (1944) Cal. 335 and Bhupati Mohan Das v. Phanindra
Chandra Chakravarty and Anr., AIR (1935) Cal. 756, relied upon.
Sesha Ayyar v. Krishna Ayyar, AIR (1936) Mad. 225, approved.
C
Nirmal Agency v. Commercial Tax Officer, (1992) 86 STC 450, impliedly
overruled.
l.2. A lottery in essence is a chance for a prize, the sale of a lottery
ticket can only be a sale of that chance. There is no other element. Every
right can be sub-divided into lesser rights. When these lesser rights
D culminate in a legally recognizable right, it is the latter which defines the
right. The right to participate in the draw is a part of the composite right of
the chance to win and it does not feature separately in the definition of the
word "lottery". It is an implicit part of the chance to win. It is not a different
right. The separation is specious since neither of the rights can stand without
E the other. A draw without a chance to win is meaningless and one cannot claim
a prize without participating in the draw. In fact the transfer of the chance to
win assumes participation in the draw. (441-D-F]
State of West Virginia v. John Wassick, 156 W. Va. 128, 191S.E.2d283;
and Van Rasselv. Kroon, (1953] HCA 3: (1953) 87 CLR 298 (4 March (1953)
F and Jones v. Carter, 8 Q.B. 134, referred to.
G
CIVIL ORIGINAL JURISDICTION : Civil Appeal No. 4552 of 1998.
From the Judgment and Final Order dated 17. 7 .1998 of the Delhi High
Court in C.W.P. No. 529of1997.
WITH
CA. Nos. 4553-4557/1998, 4913, 6256-6260/1998, 177-179/1999, 215512000,
6893 of2003 & SLP(C) Nos.2469, 2473, 2614, 2617, 2507, 2841, 5225-26, 5608,
11129, 11768 of2000, W.P. (C) Nos. 33/2002, 127/2005 & SLP (C) Nos. 18466/
H 2002, 1621012001, 690712002 and 1789412002.
SUNRISE ASSOC IA TES v. GOVT. OF NCT OF DELHI [RUMA PAL, J.] 425
H.N. Salve, K.K. Venugopal, T.S. Doabia, T.LV. Iyer, S. Ganesh, S. Kura(, A
P.N. Misra, Bhargava V. Desai, S.K. Singh, Ms. M. Grover, Ms. A. Singh, Ms.
S. Parwanda, Ms. N. Kanungo, Anil K. Kher, Kapil Kher, A.K. Jain, Rajesh
Jain, Devendra Singh, Dr. S. Balwada, H.R. Bhatia, M. Sumantaray, Ghanshyam,
Pradeep Misra, Sushil Kumar Jain, S.K. Bhattacharya, L.K. Paonam, S.P. Sharma,
Yogesh Jogia, Ms. Hetu Arora, K.V. Vijayakumar, Jay Savla, Vinay Kumar Garg,
Hari Shankar, K. Randhir Chawla, Pradeep Tara, Ms. Renu Saigal, Praveen B
Kumar, Ms. Prasanthi Prasad, T.P. Hariprasad, Ms. Anju Bala, Mrs. Padmavathy,
J.B. Ravi, M.P.S. Tomar, Mrs. Anil Katiyar, A. Desai, Jay Savla, Ms. Meenakshi
Ogra, Ms. Reena Bagga, K.K. Mani, K.B. Sandeep, K.V. Vijayakumar, D.S.
Mahra, Subramonium Prasad, Jai Kishore, Abhay Kumar, R.K. Adsure, Ajay
Siwach, P. Dahiya, Sandeep Sharma, T.V. George, Ms. Renu Sahgal, E. Abhar, C
S.K. Jain, Pradeep Agarwal, A.P. Dhamija, Ram Viwas, H.D. Thanvi, S. Singhania
and B.K. Sharma for the appearing parites.
The Judgment of the Court was delivered by
RUMA PAL, J. By an order dated 13th October, 1999 in Sunrise D
Associates v. Government of NCT of Delhi & Ors., [2000] I SCC 420, the
decisions of this Court in H. Anraj v. Government of Tamil Nadu, [ 1986] I
SCC 414 as well as Vikas Sales Tax Corporation & Anr. v. Commissioner of
Commercial Taxes and Anr., [1996] 4 SCC 433 (in so far as it affirmed the
decision in the H. Anraj) have been referred to this Bench for re-consideration. E
The question in H. Anraj was whether sales tax can be levied by States
on the sale of lottery tickets. A bench of two-Judges held that a lottery
involved (i) the right to particip~te in the lottery draw, and (ii) the right to win
the prize, depending on chance. The learned Judges were of the opinion that
while the second right was a chose in action and therefore not 'goods' for F
the purposes of the levy of Sales Tax, the first was a transfer of a beneficial
interest in moveable goods and was a sale within the meaning of Article 366
(29-A)(d) of the Constitution and consequently subject to sales tax.
The immediate cause for the present reference was a decision of the
High Court of Delhi dated 17th July, 1998 in Haryana State Lotteries v. Govt. G
of NCT, (1998) 46 DRJ 397 disposing of a series of writ petitions which
construed H. Anraj and held that lottery tickets were goods and are liable to
sales tax under the Delhi Sales Tax Act, 1975. Several of the writ petitioners
before the Delhi High Court have challenged the decision of the Delhi High
Court before this Court. In the appeal preferred by Sunrise Associates, the
order of reference was made on the primafacie view that there was no good H
426
SUPREME COURT REPORTS [2006) SUPP. I S.C.R.
A reason to split a lottery into two separate rights and, therefore, the judgment
in H. Anraj required reconsideration. Since in the case of Vikas Sales
Corporation v. Commissioner o.f Commercial Taxes (supra), a bench ofthreeJudges had agreed with the decision of H. Anraj, it was necessary that the
appeal should be heard by a Constitution Bench.
B
The relevant provisions of law which formed the background in the
context of which the decision of H. Anraj was given are considered by us
prior to assessing the correctness of the decision. Entry 54 of List II of the
Seventh Schedule read with Article 246(3) of the Constitution gives the States
power to make laws with respect to "taxes on the sale or purchase of goods
C other than newspapers subject to the provisions of Entry 92(A) of List!". The
meaning of the expression "sale of goods" was considered by a Constitution
Bench in the The State of Madras v. Gannon Dunkerley & Co. Ltd., [1958]
SCR 379. The question arose in connection with assessment of sales tax
under the Madras General Sales Tax Act, 1939 for the year 1949-50 on the
value of materials used by the respondent-assessee for the execution of a
D works contract. The Constitution, although it defines 'goods' under Article
366(12) as "including all materials, commodities and articles", contains no
definition of the expression 'sale of goods'. The Court held that the expression
'sale of goods' in the entry cannot be construed in its popular sense and it
must be interpreted in its legal sense. After considering various authorities
E as well as the provisions of the Sales of Goods Act, 1930, the Court held that
the expression 'sale of goods' is what it means in the Sale of Goods Act, 1930.
A contract for the sale of goods, acco~ding to Section 4(1) of the Sale of
Goods Act, 1930 "is a contract whereby the seller agrees to transfer the
property in goods to the buyer for a price".
F
This classical concept of sale was held to apply to the entry in the
legislative list in that there had to be three essential components to constitute
a transaction of sale before tax could be imposed - namely, (i) an agreement
to transfer title (ii) supported by consideration, and (iii) an actual transfer of
title in the goods. In the absence of any one of these elements it was held
that there was no sale. Therefore, a contract under which a contractor agreed
G to set up a building would not be a contract for sale. It was one contract,
entire and indivisible and there was no separate agreement for sale of goods
justifying the levy of sales tax by the provincial legislatures. Parties could
have provided for two independent agreements, one relating to the labour and
work involved in the erection of the ~uilding and the second relating to the
H sale of the material used in the building in which case the latter would be an
-
SUNRISE ASSOCIATES v. GOVT. OF NCT OF DELHI [RUMA PAL, J.] 427
agreement to sell and the supply of materials thereunder, a sale. Where there A
was no such separation, the contract was a composite one and it was not
classifiable as a sale.
The narrow definition put on the word "sale" by Gannon Dunkerley
was followed by Courts in several cases excluding other transactions such
as hire purchase, long leases etc. from the scope of "sale" on the ground that B
one or more of the three components of sale were absent. Consequently
Article 366 of the Constitution was amended by introduction of Clause 29A
which is to the effect that "tax on the sale or purchase of goods" for the
purposes of the Constitution would include six particular transactions which
were, by virtue of judicial decision, excluded from the phrase. We are concerned C
with the first class of transaction so included namely:
(a) a tax on the transfer, otherwise than in pursuance of a
contract, of property in any goods for cash, deferred payment
or other valuable consideration;
xxx
xxx
xxx
xxx
xxx
xxx
and such transfer, delivery or supply of any goods shall be deemed
D
to be a sale of those goods by the person making the transfer,
delivery or supply and a purchase of those goods by the person to E
whom such transfer, delivery or supply is made;
Therefore in order to constitute a deemed sale within the meaning of
Art. 366(29A)(a), there has to be 1) goods 2) a transfer of property in the
goods 3) valuable consideration. The requirement of an agreement for sale is
not necessary for constituting a sale under this sub-clause. The absence of F
any one of these elements would mean that the transaction far from being a
sale within the Gannon Dunkerley definition, would not even be a deemed
sale within the extended definition of sale under Art. 366(29A)(a).
Following the Constitutional amendment, the States amended their G
respective Sales Tax Laws to incorporate the constitutional definition of tax
on the sale or purchase of goods. The States of Tamil Nadu and West Bengal
were no exception. The Tamil Nadu General Sales Tax Act 1959 and the Bengal
Finance (Sales Tax) Act 1941 were both amended to incorporate new definitions
of 'sale'.
H
428
SUPREME COURT REPORTS [2006] SUPP. I S.C.R.
A
Section 20) and Section 2(n) of the Tamil Nadu Act defined 'goods' and
'sale' as noted in H. Anraj thus:
"20) 'Goods' means all kinds of movable property (other than
newspapers, actionable claims, stocks and shares and securities) and
includes all materials, commodities, and articles (including those to be
B
used in the fitting out improvement or repair of moveable property);
and all growing crops, grass or things attached to, or fonning part of
the land which are agreed to be severed before sale or under the
contract of sale;
c
D
E
F
2(n) 'Sale' with all its grammatical variations and cognate expressions
means every transfer of the property in goods (other than by way of
a mortgage, hypothecation, charge or pledge) by one person to another
in the course of business for cash, deferred payment or other valuable
considerations;
Other clauses give extended meanings which are not material.
Similarly the expressions 'goods' and 'sale' were defined in Section 2(d)
and (g) respectively of the Bengal Act thus:
"2( d) 'goods' include all kinds of movable property other than
actionable claims, stocks, shares or securities;
2(g) 'sale' means any transfer of property in goods for cash or deferred
payment or other valuable consideration.
These definitions of 'goods' reflect the definition of the word in the
Sales of Goods Act, 1930 which reads:
"every kind of movable property other than actionable claims and
money; and includes stock and shares, growing crops, grass, and
things attached to or fonning part of the land which are agreed to be
severed before sale or under the contract of sale".
G
All these definitions exclude inter alia an actionable claim from the
definition of "goods". An "actionable claim" has in turn been defined in
Section 3 of The Transfer of Property Act, 1882 as meaning:
"a claim to any debt, other than a debt secured by mortgage of
immoveable property or by eypothecation or pledge of moveable
H
property, or to any beneficial interest in moveable property·not in the
-
..
-
SUNRISE ASSOCIATES v. GOVT. OF NCI OF DELHI [RUMA PAL, J.] 429
possession, either actual or constructive, of the claimant, which the A
Civil Courts recognize as affording grounds for relief, whether such
debt or beneficial interest be existent, accruing, conditional or
contingent".
The dealers' (who were the appellants in H. Anraj) contention was that
a lottery ticket was only a slip of paper or memorandum evidencing the right B
of the holder to share in the prize or the distributable funds and was merely
a convenient mode for ascertaining the identity of the winner. It was contended
that a sale of a lottery ticket was nothing more than a sale of a chance to win
a prize, and therefore, it was merely a contingent interest in money. Alternatively
it was submitted that the lottery tickets were in fact actionable claims within C
the meaning of Section 3 of the Transfer of Property Act, 1882, and therefore,
outside the definition of "goods" under the Sales Tax Acts.
The Court in H. Anraj came to the conclusion that the transfer of a
lottery ticket upon consideration paid by the purchaser was not a mere
contract creating an obligation or right in personam between the parties, but D
was in the nature of a grant. The Court noted the various definitions of the
word "lottery" in dictionaries and authoritative text books and decisions of
the Courts and held that a lottery was composed of three essential elements,
namely: 1) chance, 2) consideration, and 3) prize. As we have mentioned
earlier, according to the learned Judges a sale of a lottery ticket conferred on
the purchaser two rights viz. a) the right to participate in the draw and b) the E
right to claim a prize contingent upon the purchaser being successful in the
draw. Both were held to be beneficial interests in moveable property, the
former "inpraesentf', the latter in faturo depending on the contingency. To
use the words of the Court:-
"Lottery tickets, not as physical articles, but as slips of paper or F
memoranda evidence not one but both these beneficial interests in
moveable property which are obviously capable of being transferred,
assigned or sold and on their transfer, assignment or sale both these
beneficial interests are made over to the purchaser for a price ...... the
two entitlements which arise on the purchase of a lottery ticket are of G
a different character, inasmuch as the right to participate arises in
praesenti, that is to say it is a choate on perfected right in the
purchaser on the strength of which he can enforce the holding of the
draw, while the other is inchoate right which is to materialize in future
as and when the draw takes place depending upon his being successful
H
430
A
B
SUPREME COURT REPORTS [2006] SUPP. I S.C.R.
in such draw. Moreover, on the date of the purchase of the ticket, the
entitlement to participate in the draw can be said to have been delivered
into the possession of the purchaser who would be enjoying it from
the time he has purchased the ticket and as such it would be a chose
in possession while the other would be an actionable claim or a chose
in action as has been held in Jones v. Carter' and King v. Connare2
on which counsel for the dealers relied. It is thus clear that a transfer
of the right to participate in the draw which takes place on the sale
of a lottery ticket would be a transfer of beneficial interest in movable
property to the purchaser and therefore, amounts to transfer of goods
and to that extent it is no transfer of an actionable claim; to the extent
C
that it involves a transfer of the right to claim a prize depending on
a chance it will be an assignment of an actionable claim."
It was also said that :-"
"If incorporeal right like copyright or an intangible thing like electric
D
energy can be regarded as goods exigible to sales tax there is no
reason why the entitlement to a right to participate in a draw which
is beneficial interest in moveable property of incorporeal or intangible
character should not be regarded as 'goods' for the purpose of
levying sales tax. As stated above lottery tickets which comprise such
entitlement do constitute a stock-in-trade of every dealer and therefore
E
his merchandise which can be bought and sold in the market. Lottery
tickets comprising such entitlement, therefore, would fall within the
definition of 'goods' given in the Tamil Nadu Act and the Bengal
Act."
The Court also rejected the submission of the counsel for the dealers
F that a sale of a lottery ticket does not involve the transfer of any right. The
contention was that just as a company before it issues share capital does not
hold any of the shares which come to exist only in the hands of the
shareholders through subscribing for them, so in the case of a lottery the
promoter sponsoring it, does not have the right to participate in the draw or
G the right to claim the prize. Since one cannot 'transfer' what one does not
have, it was argued that there was no 'transfer' of any right by the promoter
to the purchaser of the ticket. The submission was rejected on the ground
H
I.
8Qb 134; 115 ER 825, 826.
2.
61 CLR 596. 607.
...
..
..
SUNRISE ASSOCIATES v. GOVT. OF NCT OF DELHI [RUMA PAL, J.] 431
that the analogy was inapt as Joint Stock Companies were governed by the A
provisions of the Company's Act and Memorandum of Articles of Association
of the Company's whereas the issue of lottery tickets was governed by raffle
schemes and the rules framed therefor by the promoter containing provisions
which were entirely different. Secondly, the context in which lottery tickets
were issued was different from the context in which shares were allotted.
Moreover it was said that:-
" ... 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
B
a prize) as distinct from the right to receive or claim a prize in such C
draw, needs to be highlighted which has a significant bearing on the
question whether the lottery tickets would be goods or not. It cannot
be disputed that this right to participate in the draw under a lottery
ticket remains a valuable right till the draw takes place and it is for
this reason that licenced agents or wholesalers or dealers of such
tickets are enabled to effect sales thereof till the draw actually takes D
place and as such till then the lottery tickets constitute their stockin-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 i.n the draw must in a sense be regarded as the
dealer's merchandise and therefore, goods, capable of being bought E
or sold in the market."
The Court also relied upon the decision in United States v. Mueller to
hold that for the purpose of imposing levy of sales tax lottery tickets comprising
the entitlement to a right to participate in a draw will have to be regarded as
goods properly so called.
F
Justice Mukharji (as His Lordship then was) concurred with some
hesitation with the decision of Justice Tulzapurkar, J. who delivered the main
judgment, particularly with regard to the question of transfer of a right by the
seller of the lottery ticket to the purchaser. This hesitation is more than clearly
brought out in his short judgment where he said:-
G
"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
3.
(1942) I ELR 224.
H
A
B
432
SUPREME COURT REPORTS [2006] SUPP. I S.C.R.
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 or not."
Both learned Judges, however, agreed that the right to participate in the
draw under a lottery ticket was a valuable right and that lottery tickets, not
as physical articles but as slips of paper or memoranda evidencing the right
C to participate in the draw can be regarded as dealers merchandise and, therefore
goods which are capable of being bought or sold in the market.
The logical corollary of this was drawn by the Kamataka High Court in
the case of Nirmal Agency v. Commercial Tax Officer, (1992) 86 STC 450.
Given the dual nature of the rights involved in a lottery as decided by
D H. Anraj, the High Court said that sales tax could be levied only on that part
of the lottery ticket which had been held to amount to a transfer of goods.
The Assessing Authority would have to determine how much of the
consideration was. referable to the right to participate in the draw and how
much to the chance of winning, and thereafter assess the dealer on the first
part alone.
E
Vikas Sales Corporation & Anr. v. Commissioner of Commercial Taxes
and Anr. 4 was a case where the issue before this Court was whether REP
Licenses or replenishment licences were goods so that Sales tax could be
levied on their transfer. The REP licences gave permission to an exporter to
F take credit for the exports made. Such credit could be adjusted against import
duty if and when the exporter wished to import goods. The Import and Export
Policy, 1993, which contained the relevant provisions relating to REP licences
specifically permitted transferability of the licences. This Court considered the
definition of"goods" in the Constitution, in the Sales of Goods Act 1930, the
Central Sales Tax Act, 1956 the Tamil Nadu General Sales Tax Act, 1959, the
G Kamataka Sales Tax Act, 1957, as well as the Kerala General Sales Tax Act,
I 963 and said that all these definitions provided that goods mean inter a/ia
all kinds of moveable property. The definition of property in several authorities
was thereafter considered and it was concluded that the material on record
showed a uniform emphasis on the expansive manner in which the expression
H 4.
[1996] 4 sec 433.
SUNRISEASSOCIATESv. GOVT. OFNCTOFDELHI [RUMAPAL,J.) 433
'property' was understood. It was noted that debts, contracts and other A
choses in action were chattels no less than furniture or stock in trade.
Similarly, patents, copyrights and other rights in rem were also included
within the meaning of moveable property. The Court rejected the argument
that REP licences were actionable claims within the meaning of Section 3 of
the Transfer of Property Act and said:-
"When these licences/scrips are being bought and sold freely in the
market as goods and when they have a value of their own unrelated
to the goods which can be imported thereunder, it is idle to contend
that they are in the nature of actionable claims. Indeed, in H. Anraj
B
the main contention of the petitioners was that a lottery ticket was in C
the nature of an actionable claim. The said argument was rejected after
an elaborate discussion of law on the subject. We agree with the said
decision and on that basis hold that the REP Licences/Exim Scrips are
. not in the nature of actionable claims." (para 35 pg.449)
Relying on the decision in H. Anraj and Vikas Sales Corporation the D
Delhi High Court in the judgment on which the referral order has been passed,
rejected a challenge to the constitutional validity of Section 4(l)(cc) of the
Delhi Sales Tax Act, I 975 as introduced by the Delhi Sales Tax (Second
Amendment) Act 1994 with effect from 2. I. I 995. The amendment was challenged
by the dealers on various grounds. It was argued inter alia that the sale of
lottery tickets did not involve a sale of goods within the meaning of the Sales E
Tax Act, and that even if it did, only that right which was held to be a sale
namely, the right to participate in the draw could be subject to Sales Tax. The
value of the right to win the lottery prize would have to be segregated. The
Delhi High Court rejected the submissions based on its reading of the decision
in H. Anraj and Vikas Sales.
F
We are not called upon to decide all the grounds taken by the appellants
impugning the decision except to the extent that the High Court relied on the
two decisions which are under reconsideration before us. The High Court
construed the decision in H. Anraj and held that it was an authority for the
proposition that lottery tickets themselves are goods. It was said:-
G
"A reading of the judgment (in Anra1) in its entirety ...... .leaves no
manner of doubt that the lottery tickets have been held to be
merchandise or trading stock of the dealer and hence goods properly
so-called. Undoubtedly, one of the components of the lottery tickets
H
A
B
c
434
SUPREME COURT REPORTS [2006] SUPP. I S.C.R.
is a right to enforce the holding of the draw and to claim a prize but
that is a right running along with the lottery tickets. It does not
detract from the holding that the lottery tickets are goods. Even at the
risk of repetition we would like to stress that in H. Anraj-ll their
Lordships have held the lottery ticket comprising of two components
in the ·process of analyzing its juridical concept. But at more places
than one they have clearly said (i) lottery tickets are movable property
as opposed to immovable property, (ii) the assumption of lottery
tickets being contractual documents cannot militate against their being
goods, (iii) till the draw takes place they are freely marketed as goods,
and (iv) they must be regarded as the dealer's merchandise or stock
in trade freely changing hands. The lottery tickets have a value of
their own de hors their components".
Having held that the decision in H. Anraj decided that the lottery tickets
themselves were goods, the High Court differed with the view expressed by
the Kamataka High Court in Nirmal Agency v. Commercial Tax Officer (supra)
D which had proceeded on the basis that H. Anraj had held that the goods in
a sale of lottery tickets comprised of the rights to participate in the clraw and
the chance to win.
Before us the appellants, who are dealers in the sale of lottery tickets,
have submitted that H. Anraj wrongly drew a distinction between the right
E to participate in the draw and chance to win the prize. It was submitted that
such bifurcation was artificial as both were part of the same transaction. It
was submitted that even on the "two rights" theory each of those rights
would be choses in action. As far as the decision in Vikas Sales is concerned,
it was submitted that the additional reason given namely free transferability
F for holding that a particular thing was goods, was erroneous. It was pointed
out that even actionable claims such as negotiable instruments and debentures
may be freely transferable. As far as the DEPB is concerned, according to the
appellants, it was in the nature of a notional credit which an exporter acquires
on export by way of an entry in a passbook. This credit was utilizable by the
importer to be adjusted against the import duty payable on goods imported.
G The credit was freely transferable but it could not be said to be goods only
by that reason. At best it was an actionable claim.
According to some appellants, the right to participate in a draw which
was held to be a sale of goods by H. Anraj was only a right to services
H rendered by the lottery organizers. There was no transfer of any moveable
-
SUNRISE ASSOCIATES v. GOVT. OF NCT OF DELHI [RUMA PAL, J.] 435
property in the entire transaction. It was also submitted that when there were A
divisible elements in a contract, the predominant element would determine the
nature of the right. As far as lottery tickets were concerned, the right to
participate in the draw was overwhelmingly dominated by the element of the
right to claim the prize by the prize winner. It was contended that value wise
the prize money constituted 90% of the total amount collected from the B
purchasers whereas the value of the right to participate would be limited to
the administrative expenses for holding the draw which accounted for the
balance I 0% of the monies collected. Several other issues have been raised
on the merits of the decision of the Delhi High Court. As we have said, those
other issues will have to be considered separately at the time of disposal of
the appeals after we have disposed of the subject matter of this reference. C
The State Governments have not taken consistent stands. As far as the
Government of the National Capital Territory of Delhi is concerned, it was
submitted that the very arguments which had been made, considered and
rejected in H. Anraj 's case were sought to be reagitated again by the appellants.
It was submitted that the reasoning in H. Anraj did not require reconsideration. D
It had held the field for several decades and had been followed in a number
of cases. It was submitted that a lottery ticket represents a commodity within
the meaning of Article 366(12).
The State of Tamil Nadu on the other hand submitted that the lottery
ticket itself was a chattel or goods and, therefore, falls squarely within the net E
of taxation under the Tamil Nadu Sales Tax Act. It was submitted that there
can be a value addition to the lottery tickets by valuing all the rights accruing
to the holder of the ticket, but these additional rights did not detract from the
fact that the lottery ticket itself is an item of merchandise and liable to be sold
as such. Reliance was also placed on the General Clauses Act with regard to F
the definition of moveable property. It was contended that since a lottery
ticket was not immoveable property it was moveable property and therefore,
goods.
The State of Maharashtra has addressed us on the question whether
the sale of a Duty Entitlement Pass Book (DEPB) should attract sales tax G
under the Bombay Sales Tax Act, 1959. It was submitted that considering the
valuable right conferred by the DEPB, it is an item of movable property and
therefore 'goods' within the definition of the word in Section 2(13) of the Act.
The definition in common with other State Sales Tax Acts, includes every kind
of movable property other than actionable claims and money. It was submitted H
436
SUPREME COURT REPORTS [2006] SUPP. I S.C.R.
A that "actionable claim" as defined in Section 3 of the Transfer of Property Act,
is substantially different from the concept of "chose in action" in English law
and it was submitted that what is a 'chose in action' was not necessarily an
actionable claim. The reasoning in Vikas Sales (supra) has been relied on,
which it was urged, should be reaffirmed. The other appearing States have
B adopted the argument~ made on behalf of the NCT, Delhi and Tamil Nadu and
Maharashtra.
It is necessary at this stage to clarify that the order of reference in
Sunrise v. NCT, Delhi (supra) is limited to the question whether lottery tickets
are 'goods'. We have not been called upon to answer the question whether
C REP licences (or the DEPB which has replaced the REP licences) are 'goods'.
Although we have heard counsel at length on this, having regard to the
limited nature of the reference, we do not decide the issue. The decision in
Vikas Sales was referred to only because it approved the reasoning in Anraj
and not because the referring Court disagreed with the conclusion in Vikas
Sales that REP licences were goods for the purposes of levy of sales tax.
D Indeed REP licences were not the subject matter of the appeal before the
referring Court and could not have formed part of the reference. The only
question we are called upon to answer is whether the decision in H. Anraj
that lottery tickets are goods for the purposes of Article 366 (29A)(a) of the
Constitution and the State Sales Tax Laws, was correct.
E
The first dispute which has to be resolved is what H.