Skill Lotto Solutions Ltd vs UoI-WP(C) No. 961-2018
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
WRIT PETITION (CIVIL) NO.961 OF 2018
SKILL LOTTO SOLUTIONS PVT. LTD. …PETITIONER
VERSUS
UNION OF INDIA & ORS. …RESPONDENTS
J U D G M E N T
ASHOK BHUSHAN, J.
The petitioner, an authorized agent, for sale and
distribution of lotteries organized by State of
Punjab has filed this writ petition impugning the
definition of goods under Section 2(52) of Central
Goods and Services Tax Act, 2017 and consequential
notifications to the extent it levies tax on
lotteries. The petitioner seeks declaration that the Signature Not Veri fied
Digi tally signed by ARJU N BISHT Date: 2020. 12.03 17:03:04 IST
Reason:
levy of tax on lottery is discriminatory and
violative of Articles 14, 19(1)(g), 301 and 304 of the Constitution of India.
2. We need to notice certain background facts which has given rise to this writ petition.
2.1 The Parliament enacted the Lotteries
(Regulation) Act, 1998 to regulate the
lotteries and to provide for matters
connected therewith and incidental thereto.
Section 2(b) of the Act defines lottery which
provides that “lottery” means a scheme, in
whatever form and by whatever name called,
for distribution of prizes by lot or chance
to those persons participating in the chances
of a prize by purchasing tickets. Section 4
provides that a State Government may
organise, conduct or promote the lottery
subject to conditions enumerate therein.
Different States have been organizing and
conducting lotteries in accordance with the
aforesaid Act. It is to be noted that prior
to parliamentary enactment for regulating the
lotteries, different States have enacted
legislation regulating the lotteries which
were the legislations even prior to the
enforcement of the Constitution, levying tax
on the sale of lottery tickets. Reference is
made to Bengal Finance Sales Tax Act, 1941
and Madras General Sales Tax Act, 1939.
Another Statute to be noticed is Bombay
Lotteries (Control and Tax) and Prize Competitions (Tax) Act, 1958.
2.2 There has been a series of litigation
regarding taxability of lottery tickets and
this Court had occasion to deliver several
judgments on the subject which we shall
notice hereinafter. Service tax was levied
on lottery tickets by Finance Act, 1994. A
Circular dated 14/21.2.2017 was also issued
providing for mode of determination of the
amount of service tax. Rules were also
framed namely Lotteries (Regulation) Rules,
2010 by the Central Government containing a
set of rules for regulation of the lotteries organized by the States.
2.3 By Constitution (One Hundred and First
Amendment) Act, 2016, Article 246A was
inserted in the Constitution containing
special provisions with respect to Goods and
Services Tax. Article 269A and Article 279A
were also inserted by same constitutional
amendment. Article 279A provided for
constitution of Goods and Services Tax
Council. The Parliament enacted the Central
Goods and Services Tax Act, 2017 (Act No.12
of 2017) to make provisions for levy and
collection of tax on intra-State supply of
goods or services or both by the Central
Government and for matters connected
therewith or incidental thereto. The Act
came into force w.e.f. 12.04.2017. The
Parliament also enacted the Integrated Goods
and Services Tax Act, 2017 (Act No.13 of
2017), the Union Territory Goods and Services
Tax Act, 2017 (Act No.14 of 2017) and the
Goods and Services Tax (compensation to States) Act, 2017 (Act No.15 of 2017).
2.4 Under Section 2(52) of Central Goods and
Services Tax Act, 2017, the term “goods” has
been defined which provides that “goods”
means every kind of movable property other
than money and securities but includes
actionable claim……………. Chapter III of the
Act provides for levy and collection of tax.
Section 15 deals with value of taxable
supply. After the enactment of Act No.12 of
2017, Notification was issued by Government
of India dated 28.06.2017 in exercise of
power conferred by sub-section (1) of Section
9 notifying the rate of the integrated tax.
By the notification dated 28.06.2017 with
regard to lottery run by the State
Government, value of supply of lottery was
deemed to be 100/112 of the face value of the
ticket or the prize as notified in the
official gazette of the organising State,
whichever is higher. With regard to
lotteries authorised by the State Government
value of supply of lottery was deemed to be 100/128.
2.5 The writ petitioner, an authorised agent for
the state of Punjab for sale and distribution
of lotteries organised by State of Punjab
aggrieved by the provisions of Act No.12 of
2017 as well as notifications issued therein
filed the present writ petition praying for following reliefs:-
“a) By appropriate writ, order
or direction, quash and set aside
the definition of ‘Goods’ under Section 2(52) of the Central Goods
and Services Tax Act, 2017 [Annexure P-18 (Pg.141 to 143)], Impugned Notifications 01/2017
Central Tax (Rate), 01/2017
[Annexure P-19 (Pg.144 to 148)], Integrated Tax (Rate), 01/201 [Annexure P-20 (Pg. 149 to 154)], and the State rate Notifications of the Respondent State of Punjab [Annexure P-21(Pg.155 to 157)] to the extent it levies tax on Lottery by declaring the same to be discriminatory and violative of Article 49, (19)(1)(g), 301, 304 of the Constitution of India and of the CGST, SGST and IGST Act.
b) In the Alternative, by appropriate writ, order or direction quash and set aside the impugned Notifications 01/2017
Central Tax (Rate), 01/2017 Integrated Tax (Rate) 01/2017 and the State rate Notification of the Respondent State of Punjab to the extent it levies tax on the face value of the lottery ticket without abating the prize money Component of the lottery ticket when the said amount never forms part of the income of the Petitioner or the lottery trade.
c) In the Alternative, by appropriate writ, order or direction quash and set aside the Impugned Notifications 01/2017
Central Tax (Rate), 01/2017 Integrated Tax (Rate) 01/2017 and the State rate Notification of the Respondent State of Punjab to the extent it levies two different rates on tax on the face value of the lottery ticket and declare that the Respondents can levy an
uniform rate of 12% Tax on Lottery irrespective of place where it is being sold, and after adjusting the prize money component from the face value of lottery tickets.”
3. We have heard Shri Ravindra Shrivastava, learned
senior counsel for the petitioner and Shri Vikramjit
Banerjee, learned Additional Solicitor General for
the Union of India. We have also heard Shri C.A.
Sundaram, learned senior counsel for the intervenor.
4. Shri Shrivastava submits that lottery is not a goods
and under the Central Goods and Services Tax Act,
2017, GST is levied only on goods, hence levy of GST
on lottery is ultra vires to the Constitution. It is
further submitted that the Constitution Article 366
sub-article (12) define goods to include all
materials, commodities and articles. The definition
in the Constitution exclude actionable claims since
it only refers to materials, commodities and
articles. The definition of goods given in Section
2(52) of Central Goods and Services Tax Act, 2017
(hereinafter referred to as “Act, 2017”) is
unconstitutional. It is further submitted that
Constitution Bench of this Court in Sunrise
Associates Vs. Govt. of NCT of Delhi and Ors., (2006)
5 SCC 603 has categorically held that lottery is not
a good. When Constitution Bench has held that
lottery is not a good, the provisions of Act, 2017
treating the lottery as goods is contrary to the
judgement of Constitution Bench in Sunrise Associates
(supra). The lottery is not an actionable claim as is
now sought to be included in the definition of goods
given in Section 2(52). The provisions of Act, 2017
are self-contradictory in as much as the definition
of actionable claim is as per definition of Transfer
of Property Act, which is only the claim and not the
goods. Further, under the definition of goods,
actionable claims have been included as goods under
Section 2(52). It is further submitted that GST is
being levied on the face value of the lottery tickets
which is impermissible since the face value of the
tickets also includes prize money to be reimbursed to
the winners of the lottery tickets. Learned senior
Counsel submits that meaning of goods as occurring in
the Constitution of India has to be taken in its
legal sense. The definition of goods as occurring in
Sale of Goods Act, 1930 clearly excludes actionable
claims from the definition of goods, which definition
has been held to be definition of goods under the
Constitution by this Court in State of Madras Vs.
Gannon Dunkerley & Co., (Madras) Ltd., (1959) SCR
329. The attempt of including the actionable claim
within the meaning of goods seems to be deliberate
attempt to make the lottery fall within the scope of
GST which would render the definition of goods
contrary to the meaning ascribed to it by the
Constitution of India as held by Gannon Dunkerley
(supra). The words defined in the Constitution of
India will have to be ascribed their legal meaning and not the popular meaning.
5. Shri Shrivastava further submits that the Parliament
does not enjoy an absolute power to make an inclusive
definition of something to be taxed which is not
taxable otherwise. There is no absolute power with
the legislature to define something. If such
definition has no rationale, such artificial
definition cannot be treated only for the purpose of
assuming taxation power. Shri Shrivastava further
submits that taxing actionable claim only is
discriminatory since all actionable claims are not
being taxed. Shri Shrivastava submits that according
to Schedule III to the Act, 2017 under Item No.6
actionable claims other than lottery, betting and
gambling have been treated neither as supply of goods
nor supply of services. There is a clear hostile
discrimination in taxing only lottery, betting and
gambling whereas all other actionable claims have
been left out of the taxing net. Shri Shrivastava
has further submitted that the observations made in
the judgment of Constitution Bench in Sunrise
Associates (supra) that lotteries are actionable
claims are only obiter dicta and cannot be treated to be ratio of the judgment.
6. Shri Vikramjit Banerjee, learned Additional Solicitor
General refuting the submissions of learned senior
counsel for the petitioner at the very outset submits
that the writ petition filed by the writ petitioner
under Article 32 is not maintainable. It is
submitted that lottery is “ res extra commercium” and
no right under Article 19(1)(g) and Article 301 can
be claimed by the petitioner with regard to lottery.
The transaction of lottery tickets cannot be raised
to the status of trade, commerce or intercourse.
There is no right with the petitioner which can be
enforced by writ petition filed under article 32 of
the Constitution, hence, the writ petition being not
maintainable deserves to be dismissed. Mr. Banerjee
further submits that the laws relating to economic
activity need to be viewed with greater latitude than
laws touching civil rights. He further submits that
courts are loath to interfere with taxing policies of
the States. The fact of not levying tax on other
actionable claims apart from lottery, betting and
gambling cannot be said to be discriminatory. It is
submitted that Constitution Bench of this court in
Sunrise Associates (supra) has held that an
actionable claim is a movable property and goods in
the wider sense. The definition of goods given in
Section 2(52) of Act 2017 is in accord with the
Constitution Bench judgment of this court in Sunrise
Associates (supra) and the argument that definition
of goods given in Section 2(52) is contrary to above
Constitution Bench judgment in Sunrise Associates
(supra) is misplaced. The definition of goods given
under Article 366(12) of the Constitution is an
inclusive definition. Article 366(12A) defines goods
and services tax to mean tax on supply of goods or
services or both except taxes on the supply of
alcoholic liquor for human consumption. Lottery
having been judicially held to be an actionable claim
is covered within the meaning of term goods under
section 2(52). The Union Parliament has the
competence to levy GST on lotteries under article
246A of the Constitution. Under Article 279A the GST
Council has approved the levy of GST on lottery
tickets, hence, the inclusion of actionable claims in
the definition of goods under section 2(52) is in
keeping with the legislative and taxing policy. It
is well settled that courts would not review the
wisdom or advisability or expediency of a tax. The
levy on face value is authorised by section 15(1)
read with section 15(5) of the Act, 2017 and Rule
31(A) of the Central Goods and Services Tax Rules,
2017. The levy of 28% tax on face value is neither
discriminatory nor beyond the taxing policy/powers of the State.
7. Shri Banerjee further submits that during pendency of
the writ petition, Rule 31A has been amended vide
notification dated 02.03.2020 merging earlier two
separate rates, i.e., regarding value of supply of
lottery run by the State Government, which was
earlier 100/112 and value of supply of lottery
authorised by the State Government, which was 100/128
has been made uniform and by virtue of Rule 31A sub-
- (2), value of supply of lottery is one and the
- , i.e., 100/128 of the face value of the ticket
or prize as notified by the organising State,
whichever is higher. He submits that in view of the
above amendment dated 02.03.2020, which is not
challenged in the present writ petition, the argument
on the ground of discrimination in the rate of tax is
no longer available to the petitioner. Shri Banerjee
further submits that judgment of this Court in State
of Madras Vs. Gannon Dunkerley (supra) relied by
learned senior counsel for the petitioner is not
attracted in the facts of the present case. It is
submitted that the above decision dealt with the
definition of term “sale” and was not concerned with the interpretation of “goods”.
8. Shri Sundaram appearing for the intervenor submits
that the Constitution permits tax on goods and
actionable claims being not taxed under the
Constitution, the Parliament cannot have the power of
taxing lottery. The taxing power of legislature is
traceable to the Constitution alone. It is not open
to the legislature to enlarge its taxing power. The
word “goods” is not a new word and is a concept well
known in the Constitution. Legislature cannot tax
something which is constitutionally not goods. The
Act, 2017 cannot include something that was not part
of the definition as provided for in the
Constitution. The definition of goods under the GST
Act would necessarily have to be guided by the
definition of goods given under the Constitution.
Shri Sundaram further submits that in any event, the
prize money in a lottery deducted from a lottery
claim ought not to be taxed at all and the tax, if at
all ought to be levied only on the invoice value,
i.e., the transaction value of the lottery ticket or
the lottery scheme after deducting the prize money.
The lottery ticket has a zero value and is only a
chance, which cannot be taxed. Shri Sundaram submits
that lottery ticket is not even an actionable claim
- , which is treated as an actionable
- Constitution Bench judgment in
Sunrise Associates (supra), which will not be a good
within the meaning of Article 366(12) of the
Constitution. He submits that since it is not a good
under the Constitution, Union and the States had no
right to tax. A Statute cannot bring in a definition
something as good, which Constitution itself
excludes. Exclusion of all actionable claims from
levy of GST except three, i.e., lottery, betting and
gambling is nothing but hostile discrimination. Shri
Sundaram submits that when the lottery is being
permitted by the States, it is a commercial activity.
When the State itself organise a lottery, it is not
pernicious. No reason is forthcoming as to why only
three actionable claims are taxed leaving all others out of tax net.
9. Shri Ravindra Shrivastava in his rejoinder submits
that he is not claiming any violation of right under
Article 19(1)(g) or Article 301. He submits that
writ petition is fully maintainable under Article 32
of the Constitution. A Parliamentary enactment on
ground of violation of Article 14 is sought to be
challenged in the writ petition, which writ petition
is fully maintainable. Shri Shrivastava questions
the legislative competence of Parliament to tax
lottery as goods. Shri Shrivastava submits that he
has placed reliance on the principle, which has been
laid down by this Court in Gannon Dunkerley (supra).
This court in Gannon Dunkerley (supra) laid down that
definition of goods has to be taken as it is meant
under the Sale of Goods Act, 1930, which definition
is also to be taken for the purposes of Article
366(12) of the Constitution. Goods has to be
interpreted in its legal sense. Goods cannot be
defined in an artificial manner as has been done by
the Parliament in Section 2(52). Shri Shrivastava
submits that inclusive definition cannot be expansive
and unrealistic. He submits that there is no
similarity in goods and actionable claims. There
cannot be artificial expansion of definition of
goods. He submits that lottery acquires property
only when prize is declared. A ticket is only a
chance and GST is levied on every sale of lottery
ticket, which is not permissible since it is not an actionable claim.
10. He reiterated his challenge on the ground of hostile
discrimination with regard to only three categories
of actionable claims, i.e., lottery, betting and
gambling whereas all other actionable claims are not
being taxed under Act, 2017. He submits that taxing
only three items has no nexus with the object sought
to be achieved. No rationale has been provided by
the respondent. If actionable claim is a homogeneous
clause, why only three have been picked out. Lottery
is not something pernicious. Relying on earlier
circular dated 14.02.2017, Shri Shrivastava submits
that prize money has to be excluded from face value.
Shri Shrivastava further submits that lottery is held
all across the world and in other countries, GST is
levied by excluding the prize money. Shri Shrivastava
has lastly submitted that notification, which has
been issued during pendency of the writ petition now
providing a uniform rate of lotteries organised by
the States or authorised by the State having not been
challenged in this writ petition, hence, petitioner
reserve its right to challenge the notification dated
21.02.2020/02.03.2020 separately in appropriate
proceedings.
11. We have considered the submissions of the learned
counsel for the parties and have perused the records.
12. From the submissions of the learned counsel for the
parties and materials on the record, following are
the questions which arise for consideration in this writ petition:-
(I) Whether the writ petition is not maintainable
under Article 32 of the Constitution of India
since the writ petition relates to lottery,
which is res extra commercium and the
petitioner cannot claim protection under Article 19(1)(g)?
(II) Whether the inclusion of actionable claim in
the definition of goods as given in Section
2(52) of Central Goods and Services Tax Act,
2017 is contrary to the legal meaning of goods and unconstitutional?
(III) Whether the Constitution Bench judgment of
this Court in Sunrise Associates (supra) in
paragraphs 33, 40, 43 and 48 of the judgment
has laid down as the proposition of law that
lottery is an actionable claim or the
observations made in the judgment were only
an obiter dicta and not declaration of law?
(IV) Whether exclusion of lottery, betting and
gambling from Item No.6 Schedule III of
Central Goods and Services Tax Act, 2017 is
hostile discrimination and violative of Article 14 of the Constitution of India?
(V) Whether while determining the face value of
the lottery tickets for levy of GST, prize
money is to be excluded for purposes of levy of GST?
Question No. I
13. Learned Additional Solicitor General submits that
petitioner, who is an authorised agent on behalf of
the State of Punjab for the lotteries organised by
the State of Punjab cannot complain violation of
Article 19(1)(g) of the Constitution and lottery
being a res extra commercium, the writ petition
cannot be entertained. He submits that right to
practice any profession or to carry on any
occupation, trade or business does not extend to
practicing a profession or carrying on an occupation,
trade or business which is inherently vicious and
pernicious. Shri Ravindra Shrivastava, learned
senior counsel appearing for the petitioner submits
that he is not claiming any violation of right under
Article 19(1)(g) in the writ petition. In view of
this submission of the learned senior counsel for the
petitioner, we need not consider the writ petition with reference to violation of Article 19(1)(g).
14. Article 32 confers a right to move to Supreme Court
for enforcement of the right conferred by the Part
III, which is guaranteed by sub-article (1) of
Article 32 of the Constitution. Article 32 is an
important and integral part of the basic structure of
the Constitution. Article 32 is meant to ensure
observance of rule of law. Article 32 provides for
the enforcement of the fundamental rights, which is
most potent weapon. In the Constituent Assembly
Debates, Dr. B.R. Ambedkar speaking about this Article made following statement:-
“If I was asked to name any particular Article in the Constitution as most important…………………… an Article without which the Constitution would be nullity – I could not refer, to any other Article except this one. It is the very soul of the constitution and the very heart of it.”
15. By this petition, the petitioner has challenged the
provisions of Central Goods and Services Tax Act,
2017 insofar as it imposes tax on the lottery. The
grounds of challenge include violation of Article 14
of the Constitution of India. The levy of GST has
been attacked as discriminatory. It is also
submitted that there is a hostile discrimination in
taxing only lottery, betting and gambling whereas
leaving all other actionable claims from the taxing
net as is evident by entry 6 of Schedule III of Act, 2017.
16. The writ petition alleging the violation of Article
14 specially with respect to a parliamentary Act can
very well be entertained under Article 32. We may
also notice that with regard to the matter of lottery
itself, this Court had entertained a writ petition
earlier under Article 32. Reference is made to
judgment of this Court in H. Anraj and Ors. Vs. State
of Maharashtra, (1984) 2 SCC 292 where the writ
petitioner, who were agents for the sale of tickets
for the lottery filed a writ petition questioning the
ban imposed on the sale of lottery tickets within the
State of Maharashtra. Even judgment of this Court in
H. Anraj Vs. Government of Tamil Nadu, (1986) 1 SCC
414 was also a writ petition, which was heard
alongwith a civil appeal questioning the leviability
of the sales tax by the State Legislature on the sale of lottery tickets.
17. We are, thus, of the considered opinion that on the
grounds, which have been raised in the writ petition,
the writ petition cannot be said to be not
maintainable under Article 32 and the preliminary
objection made by the learned ASG that the writ
petition cannot be entertained under Article 32 and is overruled.
Question Nos. II and III
18. Both the above questions being interrelated are
taken together. The question to be considered is as
to what is the legal meaning of goods and whether
actionable claim can also be a part of goods. We
need to first notice as to what is the concept of goods.
19. The Sale of Goods Act, 1930 defines goods in Section
2(7) in following words:
Section 2. Definitions. In this Act, unless there is anything repugnant in the
subject or context,—
…..
(7)”goods” means every kind of movable property other than actionable claims and money; and includes stock and shares,
growing crops, grass, and things attached
to or forming part of the land which are agreed to be severed before sale or under
the contract of sale;”
20. Section 311(2) of the Government of India Act, 1935
which has been referred by this Court as Constitution
Act defines the goods as including all materials,
commodities and articles. Entry 48 in List II of
Seventh Schedule of the Government of India Act, 1935
was “Taxes on the Sale of Goods”. Prior to the
enforcement of the Constitution of India goods were
defined in different provincial legislations. Article
366 of the Constitution of India contains heading
‘definition’. Article 366 subclause (12) defines goods. Article 366 subclause (12) is as follows:
“In this Constitution, unless the context otherwise requires, the following expression has, the meaning hereby respectively assigned to them, that is to
say
(12)goods includes all materials, commodities, and articles;”
21. Another expression which we may need to notice is
“actionable claim”. Section 3 of the Transfer of
Property Act, 1882 which is interpretation clause
defines the actionable claim in following words:
“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;”
22. Now, we may notice the definition of goods in the
Central Goods of Services Tax Act, 2017 which
definition is under challenge in the present writ
petition. Section 2 subsection (52) defines goods in the following words:
“Section 2(52)- “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached
to or forming part of the land which are agreed to be severed before supply or under a contract of supply;”
23. Section 2(1) defines actionable claim in following words:
“Section 2(1) “actionable claim” shall have
the same meaning as assigned to it in section 3 of the Transfer of Property Act, 1882;”
24. The definition of goods as contained in the Sale of
Goods Act, 1930 in Section 2(7) : “goods” means every
kind of movable property other than actionable claims
and money; whereas definition of goods in Section
2(52) in the Act, 2017 while defining goods as every
kind of movable property other than money and
securities “but includes actionable claim”. We have
noted above the various grounds of attack on the
inclusion of actionable claim in the definition of
goods under Section 2(52) as raised by the learned
counsel for the petitioner. The first ground of
attack of the learned counsel for the petitioner is
that expression goods is well known concept and is
also defined in the Constitution of India. The
definition of goods as meant and understood in the
Constitution of India has to be adopted and not departed by the Legislature.
25. Shri Srivastava in his usual persuasive style submits
that goods as defined in the Sale of Goods Act, 1930
is the concept which has been held to be applicable
with respect to goods as understood in the
Constitution of India also. The Act, 2017 could not
have taken any contrary definition and the contrary
definition taken in Section 2(52) of Act, 2017 is
unconstitutional and liable to be struck down. Sheet
anchor of the arguments of Shri Srivastava is the
Constitution Bench Judgment in The State of Madras
vs. Gannon Dunkerley & Co.(Madras) Ltd., 1959 SCR
379. In the above case this Court had occasion to
consider Entry 48 in List II in Schedule VII of the
Government of India Act, 1935 that is “Taxes on the
sale of goods”. The Madras General Sales Tax Act,
1939 was amended by the Madras General Sales Tax
(Amendment) Act, 1947 introducing several new
provisions. Section 2(c) of the Act had defined
“goods” as meaning “all kinds of movable property
other than actionable claims, stocks and shares and
securities and as including all materials,
commodities and articles”. The provision was amended
and so as to include materials “used in the
construction, fitting out, improvement or repair of
immovable property or in the fitting out, improvement
or repair of movable property”. The definition of
“sale” in Section 2(h) was also enlarged so as to
include “a transfer of property in goods involved in
the execution of a works contract”. The assessing
authorities included in the turnover of respondent
the value of the materials used in construction works
which was contested by the respondent on the ground
that power of the Madras Legislature to impose a tax
on sales under Entry 48 in List II in Schedule VII of
the Government of India Act, does not extend to
imposing a tax on the value of materials used in
works, as there is no transaction of sale in respect
of those goods, and the provisions introduced by the
Madras General Sales Tax(Amendment) Act, 1947,
authorising the imposition of such tax are ultra
vires. The High Court deciding the question in favour
of the respondent held that expression sale of goods
had the same meaning in Entry 48 which had in Sale
of Goods Act, 1930. The State of Madras filed an
appeal in this Court. The question which fell for
consideration in the above case has been noticed in the judgment in the following words:
“The sole question of
determination in this appeal is whether
the provisions of the Madras General Sales
Tax Act are ultra vires, in so far as they
seek to impose a tax on the supply of materials in execution of works contract treating it as a sale of goods by the contractor, and the answer to it must depend on the meaning to be given to the words “sale of goods” in Entry 48 in List II of Schedule VII to the Government of India Act, 1935….”
26. This Court laid down that the expression “sale of
goods” in Entry 48 has to be interpreted in its legal
sense. Following observation was made at page 396:
“…We must accordingly hold that the expression “sale of goods” in Entry 48 cannot be construed in its popular sense, and that it must be interpreted in its legal sense. What its connotation in that sense is, must now be ascertained….”
27. This Court at page 404 held:
“…We think that the true legislative intent is that the expression “sale of goods” in Entry 48 should bear the precise and definite meaning it has in law, and that that meaning should not be left to fluctuate with the definition of “sale” in laws relating to sale of goods which might be in force for the time being. …”
28. Interpreting the expression of “sale of goods” at page 413 this Court held:
“…If the words “sale of goods” have to
be interpreted in their legal sense, that sense can only be what it has in the interpretation that words of legal import occurring in a statute should be construed in their legal sense is that those words have, in law, acquired a definite and precise sense, and that, accordingly, the
legislature must be taken to have intended
that they should be understood in that sense. In interpreting an expression used
in a legal sense, therefore, we have only
to ascertain the precise connotation which
it possesses in law. …”
29. Summing up its conclusion this Court at page 425 held:
“To sum up, the expression “sale of goods”
in Entry 48 is a nomen juris,its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. In a building contract which is, as in the present case, one,entire and indivisible- and that is its norm, there is no sale of goods, and it is not within the competence of the Provincial Legislature under Entry 48 to impose tax on the supply of the materials used in such a contract treating it as a sale.”
30. We may also notice the following pertinent
observation made by this Court in the above case at page 426:
“….It is also a fact that acting on the
view that Entry 48 authorises it, the States have enacted laws imposing a tax on
the supply of materials in works contracts, and have been realising it, and their validity has been affirmed by
several High Courts. All these laws were
in the statute book when the Constitution
came into force, and it is to be regretted
that there is nothing in it which offers a
solution to the present question. We have,
no doubt, Art. 248 and Entry 97 in List I
conferring residual power of legislation
on Parliament, but clearly it could not
have been intended that the center should
have the power to tax with respect to
works constructed in the States. In view
of the fact that the State Legislatures
had given to the expression “sale of goods” in Entry 48 a wider meaning than
what it has in the Indian Sale of Goods
Act, that States with sovereign powers
have in recent times been enacting laws imposing tax on the use of materials in
the construction of buildings, and that
such a power should more properly be lodged with the States rather than the center, the Constitution might have given an inclusive definition of “sale” in Entry 54 so as to cover the extended sense. But our duty is to interpret the law as we find it, and having anxiously considered the question, we are of opinion that there is no sale as such of materials used in a building contract, and that the Provincial Legislatures had no competence to impose a tax thereon under Entry 48. ”
31. The ratio of the above judgment which is heavily
relied by Shri Srivastava is that this Court laid
down that legal meaning of expression “sale of goods”
has to be taken. It is further submitted that this
Court relied on the definition of “sale of goods” as
occurring in Sale of Goods Act, 1930 for interpreting
Entry 48 in List II Schedule VII of the Government
of India Act, 1935. We may notice that in the above
judgment this Court had occasion to deal with the
definition of term “sale” and explaining the legal
meaning as existed at the time of enactment of
Government of India Act, 1935, the above law was laid down.
32. We may further notice that by the
Constitution
(Fortysixth Amendment) Act, 1982 sub-Article (29A)
has been inserted in the Article 366 of the
Constitution. Defining tax on sale or purchase of
goods which is inclusive definition. the above
Constitution Amendment was made with the intent to
tax on the sale or purchase of goods on the transfer,
otherwise than in pursuance of a contract, of
property. Definition of sale as interpreted by this
Court in Gannon Dunkerley & Co.(Madras) Ltd. case
(supra) is no longer applicable any more and work
contracts were also taxed. We may also notice
subsequent Constitution Bench judgment in the case of
M/s Gannon Dunkerley and Co. and Others Vs. State of
Rajasthan and others, 1993 (1) SCC 364 , where this
Court had occasion to examine Article 366(29A) sub-
clause (b) of the Constitution. This Court referring
to its earlier judgment in Builders’ Association of
India vs. Union of India, (1989) 2 SCC 645, made following observations in paragraphs 25 and 30:
“25. We find it difficult to accept this contention. The question whether as a result of the Forty Sixth Amendment an independent taxing power has been conferred on the States had arisen for consideration before this Court in Builders’ Association case (supra) since it was specifically raised in the contentions urged on behalf of the States. While summarising the said contentions this Court has thus mentioned this contention Sub-clause (b) of Clause 29-A of Article 366 of the Constitution has conferred on the Legislatures of States the power to levy tax on works contract which is independent of the power conferred on the Legislatures of the States under Entry 54 of the State List,
(p.346). The said contention was rejected with these observations.
The object of the new definition introduced in Clause (29-A) of Article 366 of the Constitution is, therefore, to enlarge the scope of tax on sale or purchase of goods wherever it occurs in the Constitution so that it may include within its scope the transfer, delivery or supply of goods that may take place under any of the transactions referred to in Sub-Clauses (a) to (f) thereof wherever such transfer, delivery of supply becomes subject to levy. of sales tax. So construed the expression tax on the sale or purchase of goods in Entry 54 of the State List, therefore, includes a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract also. The tax leviable by virtue of Sub-clause (b) of Clause (29-A) of Article 366 of the Constitution thus becomes subject to the same discipline to which any levy under Entry 54 of the State List is made subject to under the Constitution.”
30. Having regard to the observations referred to above and the stand of the parties during the course of arguments before us, we do not consider it appropriate to reopen the issues which ; are covered by the decision in Builders’ Association case (supra) and we will, therefore, deal with the matter in accordance with the law as laid down in that case that the expression tax on the sale or purchase of goods in Entry 54 of the State List includes a tax
on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract also and the tax leviable by virtue of Sub-clause (b) of clause (29-A) of Article . 366 of the Constitution is subject to the discipline to which any levy under Entry 54 of the State List is made subject to under the Constitution. ”
33. Definition of goods as occurring in Section 311(12)
of Government of India Act, 1935 although was noticed
by this Court in Gannon Dunkerley and Co.(supra)
but definition of goods was not further elaborated.
Definition of goods as occurring in Article 366(12)
is inclusive definition and does not specifically
excludes actionable claim from its definition.
Whenever inclusive definition is given of an
expression it always intended to enlarge the meaning
of words or phrases, used in the definition. In this
context, it is relevant to refer to the judgment of
this Court in Reserve Bank of India vs. Peerless
General Finance and Investment co.Ltd. And
others,1987(1) SCC 424 with regard to the inclusive
definition. Following was observed in paragraphs 32-33:
“32….All that is necessary for us to say
is this: Legislatures resort to inclusive definitions (1) to enlarge the meaning of words or phrases so as to take in the ordinary, popular and natural sense of the words and also the sense which the statute wishes to attribute to it, (2) to include meanings about which there might be some dispute, or, (3) to bring under one nomenclature all transactions possessing certain similar features but going under
different names. ….
33. Interpretation must depend on the text
and the context. They are the bases of
interpretation. One may well say if the
text is the texture, context is what gives
the colour. Neither can be ignored. Both
are important. That interpretation is best which makes the textual interpretation match the contextual. A statute is best interpreted when we know why it was enacted. …”
34. The Constitution framers were well aware of the
definition of goods as occurring in the Sale of Goods
Act, 1930 when the Constitution was enforced. By
providing an inclusive definition of goods in Article
366(12), the Constitution framers never intended to give any restrictive meaning of goods.
35. In The State of Madras v. Gannon Dunkerley & Co. ,
(supra) this Court was concerned with the Provincial
Legislatures under Entry 48 in List II in Schedule
VII of the Government of India Act, 1935. We have
extracted the observations made by this Court at page
426. This Court at page 426 of the judgment held that
none of the Provincial Legislatures could have
exercised the power conferred to make law with
respect to sale of goods in the Lists, to impose a
tax on construction contracts. This Court further
observed that before such a law could be enacted it
would have been necessary to have had recourse to the
residual powers of the Governor-General under under
Section 104 of the Act. This Court has further
observed that it has no doubt, Article 248 and Entry
97 of List I conferring residual powers of
legislation on Parliament, but clearly it could not
have been intended that Centre should have power to
tax with respect to works constructed in the States.
36. The Act, 2017 is an Act of Parliament in exercise of
power of Parliament as conferred under Article 246A
of the Constitution. Article 246A is extracted for ready reference:
“Article 246A. Special provision with respect to goods and services tax. (1) Notwithstanding anything contained in articles 246 and 254, Parliament, and, subject to clause (2), the Legislature of
every State, have power to make laws with
respect to goods and services tax imposed
by the Union or by such State.
(2) Parliament has exclusive power to make
laws with respect to goods and services
tax where the supply of goods, or of services, or both takes place in the course of interState trade or commerce.
Explanation.—The provisions of this article, shall, in respect of goods and services tax referred to in clause (5) of article 279A, take effect from the date recommended by the Goods and Services Tax
Council.”
37. When the Parliament has been conferred power to make
law with respect to goods and services, the
legislative power of the Parliament is plenary. The
observations of this Court in The State of Madras v.
Gannon Dunkerley & Co.,(supra) at page 426 are clear
pointer that although the State Legislature had no
legislative competence to enact impugned legislation
but Parliament on the strength of residual power
could have legislated. We are the view that the
judgment of this Court in The State of Madras v.
Gannon Dunkerley & Co.,(supra) does not lend support
to the submission of the learned counsel for the
petitioner that Parliament could not have defined the
goods in Act, 2017, expanding the definition of goods as existing in Sale of Goods Act, 1930.
38. Now, we come to the Constitution Bench judgment of
this Court in Sunrise Associates vs. Govt. of NCT of
Delhi and others, (2006) 5 SCC 603, on which judgment
learned counsel for both the parties have placed
reliance. The above Constitution Bench was
constituted to reconsider the earlier judgment of
this Court in H. Anraj and Ors. Vs. Government of
Tamil Nadu and Ors. , (1986) 1 SCC 424. Paragraphs 4
and 5 of the referring order (Sunrise Associates vs.
Govt. of NCT of Delhi and others, 2010 (10) SCC 420 ) reads:
“4. We are inclined to agree that the judgment in H. Anraj requires reconsideration for the reason that, prima facie, the only right of the purchaser of a lottery ticket is to take the chance of winning the prize. There seems to us to be no good reason to split the transaction of the sale of a lottery ticket into the acquisition of (I) the right to participate in the lottery draw, and (ii) the right to win the prize, dependent on chance.
5. In the case of Vikas Sales Corpn. v. Commr. Of Commercial Taxes (1996 (4) SCC 433), a Bench of three learned Judges agreed with the decision in H. Anraj. It is, therefore, necessary that these appeals should be heard by a Constitution Bench.”
39. Before we further look into the judgment of this
Court in Sunrise Associates, we need to notice very
briefly judgment of this Court in H. Anraj. In the
above case the question arose out of the levy of tax
on sales of lottery tickets under Tamil Nadu General
Sales Act 1959. A writ petition was filed questioning
the levy of tax imposed on sale of lottery tickets
before this Court. The contention which was urged
before this Court for challenging levy has been
noticed in paragraph 5 of the judgment in the following words:
“5. ….Counsel pointed out that under the
charging provision contained in both the
Acts (s. 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 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 well-settled that the expression “sale of goods” has to be construed in the sense which it has in the Indian Sale of Goods Act, 1930(vide
Ganon Dunkerley’s case)
MANU/SC/0152/1958 : [1959]1SCR379 “goods under Section 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, 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 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. …”
40. This Court in the above judgment noted the
definitions of goods as occurring in Sale of Goods
Act, 1930, sale of goods in Tamil Nadu General Sales
Act, 1959, and definition of goods in Article 366
(12). After considering, this Court in H Anraj came
to the conclusion that lottery to the extent that
they comprise the entitlement to participate in the
draw are “goods” properly so called, and they are
not actionable claims. In paragraph 33 of the judgment following was laid down:
“33. 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 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.”
41. As noted above the judgment of H Anraj came to be
questioned. A Bench of three Judges in Vikas Sales
Corporation and another vs. Commissioner of
Commercial Taxes and another, (1996) 4 SCC 433,
agreed with the decision of H Anaraj necessitating
reference before the Constitution Bench in Sunrise
Associates, the Constitution Bench noticed the
question which arose before the Constitution Bench.
In paragraph 29 it noticed that “only question we are
called upon to answer is whatever the decision in H
Anaraj that lottery tickets are “goods” for the
purposes of Article 366(29A)(a) of the Constitution
and the State sales tax laws, was correct”. The
Constitution Bench in paragraph 33 observed that to
the extent that the lottery ticket evidenced the
right to claim the prize, it was not goods but an
actionable claim and therefore not “goods” under the
sales tax laws. In paragraph 33 following has been observed:
“33. In other words, the second
conclusion which we have indicated against
‘B’, was the ratio. The lottery ticket was
held to be merely evidence of the right to participate in the draw and therefore goods the transfer of which was a sale. To the extent that the lottery ticket evidenced the right to claim the prize, it was not goods but an actionable claim and therefore not ‘goods’ under the Sales Tax
Laws. A transfer of it was consequently
not a sale. The lottery ticket per se had
no innate value. The interpretation by the Delhi High Court of the ratio in H. Anraj
was in our opinion erroneous. ”
42. The pertinent observation has been made by the
Constitution Bench in paragraph 36 wherein it noticed
that in States sales tax laws actionable claims have
been uniformly excluded from the definition of goods.
This Court held “were actionable claims, etc. not
otherwise includible in the definition of “goods”
there was no need for excluding them”. Following has been laid down in paragraph 36:
“36. We have noted earlier that all
the statutory definitions of the word ‘goods’ in the State Sales Tax Laws have uniformly excluded, inter alia, actionable claims from the definition for the purposes of the Act. Were actionable claims etc., not otherwise includible in the definition of ‘goods’ there was no need for excluding them. In other words, actionable claims are ‘goods’ but not for the purposes of the Sales Tax Acts and but for this statutory exclusion, an actionable claim would be ‘goods’ or the subject matter of ownership. Consequently an actionable claim is movable property
and ‘goods’ in the wider sense of the term
but a sale of an actionable claim would
not be subject to the sales tax laws.”
43. In paragraph 40 the Constitution Bench reiterated
that a sale of lottery ticket also amounts to the
transfer of an actionable claim. Following was laid down in paragraph 40:
“40. An actionable claim would
include a right to recover insurance money
or a partner’s right to sue for an account
of a dissolved partnership or the right to claim the benefit of a contract not coupled with any liability (see Union of India v. Sarada Mills Ltd. SCC at p.880, (1972) 2 SCC 877 ). A claim for arrears of rent has also been held to be an actionable claim (State of Bihar v. Maharajadhiraja Sir Kameshwar Singh, SCR at p.910 (1952) SCR 889). A right to the credit in a provident fund account has also’ been held to an actionable claim (Official Trustee, Bengal v. L. Chippendale, AIR 1944 Cal 335; Bhupati Mohan Das v. Phanindra Chandra Chakravarty and Anr., AIR 1935 Cal 756. In our opinion a sale of a lottery ticket also amounts to the transfer of an actionable claim.”
44. Further in paragraphs 46 and 48 this Court held
lottery to be an actionable claim. Paragraphs 46 and 48 are to the following effect:
“46. There is no value in the mere right to participate in the draw and the purchaser does not pay for the right to participate. The consideration is paid for the chance to win. There is therefore no distinction between the two rights. The right to participate being an inseparable part of the chance to win is therefore part of an actionable claim.
48. Even if the right to participate
is assumed to be a separate right, there
is no sale of goods within the meaning of sales tax statutes when that right is transferred. When H. Anraj said that the right to participate was a beneficial interest in movable property, it did not define what that movable property was. The draw could not and was not suggested to be the movable property. The only object of the right to participate would be to win the prize. The transfer of the right would thus be of a beneficial interest in movable property not in possession. By this reasoning also a right to participate in a lottery is an actionable claim. ”
45. This Court concluded in paragraph 51 that in H Anraj
it was incorrectly held that a sale of a lottery
ticket involved a sale of goods. Paragraph 51 is as follows:
“51 We are therefore of the view that
the decision in H. Anraj incorrectly held
that a sale of a lottery ticket involved a
sale of goods. There was no sale of goods within the meaning of Sales Tax Acts of
the different States but at the highest a transfer of an actionable claim. The decision to the extent that it held otherwise is accordingly overruled though prospectively with effect from the date of this judgment. ”
46. One of the submissions which has been pressed by Shri
Srivastava is that the observations made by the
Constitution Bench in the above paragraphs that
lottery is an actionable claim is based on an obiter
dicta since the question was not up for
consideration. He submits that Court was to consider
as to whether lottery tickets are goods or not within
the meaning of Section 2(j) of Tamil Nadu General
Sales Act, 1959 as amended. The definition of goods
in Section 2(j) as noticed by the Constitution Bench
in paragraph 9 states that ‘goods’ means all kinds of
movable property (other than newspaper, actionable
claims, stocks, shares and securities). The exclusion
of the actionable claims from the goods as enumerated
in the definition is also a part of the definition.
If a particular item is covered by exclusion it is
obvious that it does not fall in the definition of
the goods. When the Constitution Bench came to the
conclusion that the lottery is an actionable claim it
was considering the definition of 2(j) itself and
what has been held by the Constitution Bench cannot be held to be obiter dicta.
47. Explaining obiter dicta this Court in Municipal
Corporation of Delhi vs. Gurnam Kau, 1989(1) SCC 101,
made following observation in paragraphs 10 and 11:
“10….The only thing in a judge’s decision binding as an authority upon a subsequent judge is the principle upon which the case was decided. Statements which are not part of the ratio decidendi are distinguished as obiter dicta and and
are not authoritative. ….
11. Pronouncements of law, which are
not part of the ratio decidendi are classed as obiter dicta and are not
authoritative. ….”
48. It cannot be said that the question as to whether
lottery is a goods or actionable claim had not arisen
in the decision in Sunrise Associates. When an item
was covered by excluded category, the said conclusion
could have been arisen only after consideration of
the definition and the exclusionary clause. We, thus,
are not in agreement with the submission of the
learned counsel for the petitioner that the
observations of the Constitution Bench holding
lottery as actionable claim is only obiter dicta and
not binding. The Constitution Bench in Sunrise
Associates has categorically held that lottery is
actionable claim after due consideration which is
ratio of the judgment. When Section 2(52) of Act,
2017 expanded the definition of goods by including
actionable claim also, the said definition in Section
2(52) is in the line with the Constitution Bench
pronouncement in Sunrise Associates and no exception
can be taken to the definition of the goods as occurring in Section 2(52).
49. We are of the view that definition of goods under
Section 2(52) of the Act,2017 does not violate any
constitutional provision nor it is in conflict with
the definition of goods given under Article 366(12).
Article 366 clause(12) as observed contains an
inclusive definition and the definition given in
Section 2(52) of Act, 2017 is not in conflict with
definition given in Article 366(12). As noted above
the Parliament by the Constitution(One Hundred and
First Amendment) Act, 2016 inserted Article 246A. a
special provision with respect to goods and services
tax. The Parliament was fully empowered to make laws
with respect to goods and services tax. Article 246A
begins with non obstante clause that is
“Notwithstanding anything contained in Articles 246
and 254”, Which confers very wide power to make laws.
The power to make laws as conferred by Article 246A
fully empowers the Parliament to make laws with
respect to goods and services tax and expansive
definition of goods given in Section 2(52) cannot be
said to be not in accord with the constitutional provisions.
50. Shri Shrivastava with his usual ability and skill
submits that Parliament does not enjoy an absolute
power to make an inclusive definition of something to
be taxed, which is not taxable otherwise. The power
of legislature to lay definition has limitations and
cannot include something which cannot in rational
sense be included. While goods and actionable claims
are both different concepts, lottery has no
resemblance with either. The legislature can only
provide an extended meaning by inclusive definition
only for preventing tax evasion. To support his
submission, he has relied on judgment of this Court
in Bhopal Sugar Industries Ltd., M.P. And Anr. Vs.
D.P. Dube, Sales Tax Officer and Anr., (1964) 1 SCR
481. The facts of the case have been noticed by the
Constitution Bench of this Court in following words:
“By this petition under Article 32 of the Constitution it is claimed that the definition of “retail sale” in Section 2(1) of the Act which seeks to render consumption by the owner of motor-spirit liable to tax under the Act by virtue of Section 3 is beyond the competence of the State Legislature and hence void and the order of the first respondent seeking to impose liability upon the Company for payment of tax infringes the fundamental rights of the Company under Article 19(1) (f) and (g) of the Constitution.”
51. This Court held that consumption by an owner of goods
in which he deals is not a sale within the meaning of
sale of goods. It was held that extended definition,
which includes consumption by a retail dealer of
motor spirit or lubricants is beyond the competence
of the State legislature. Following was laid down by this Court:-
“Consumption by an owner of goods in which
he deals is therefore not a sale within
the meaning of the Sale of Goods Act and therefore it is not “sale of goods” within
the meaning of Entry 54 List II Schedule
VII of the Constitution. The legislative
power for levying tax on sale of goods
being restricted to enacting legislation
for levying tax on transactions which conform to the definition of sale of goods within the meaning of the Sale of Goods Act, 1930, the extended definition which includes consumption by a retail dealer himself of motor spirit or lubricants sold to him for retail sale” is beyond the competence of the State legislature. But the clause in the definition in, Section (1) “and includes the consumption by a retail dealer himself or on his behalf of motor spirit or lubricant to him for retail sale which is ultra vires the State Legislature because of lack of competence under Entry 54 in List II Schedule VII of the Constitution is saverable, from the rest of the definition, and that clause alone must be declared invalid.”
52. In the above case, the Constitution Bench was
considering the concept of “sale” and the extended
definition of sale by which consumption by owner
himself was treated to be sale was held ultra vires
to the legislative competence of the State. The
present is a case where we are not dealing with
concept of sale and further in the case before us, it
is the Parliament, which has enacted the Act, 2017
which has competence to make a law imposing tax on goods and services.
53. We may notice another Constitution Bench Judgment of
this Court in Navinchandra Mafatlal Bombay Vs.
Commissioner of Income Tax, Bombay City, AIR 1955 SC
58. In the above case, challenge was made to Section
12-B of the Indian Income Tax Act, 1922. It was
contended that Section 12-B, which authorise the levy
of tax on capital gains was ultra vires to the
central legislature. The Constitution Bench laid down following in paragraph 5:-
“5. ………………………….If we hold, as we are
asked to do, that the meaning of the word
“income” has become rigidly crystallized
by reason of the judicial interpretation
of that word appearing in the Income Tax
Act then logically no enlargement of the
scope of the Income Tax Act, by amendment
or otherwise, will be permissible in future. A conclusion so extravagant and astounding can scarcely be contemplated or countenanced.
XXXXXXXXXX”
54. This Court further laid down that a word appearing in
a Constitution Act, must not be construed in any
narrow and pedantic sense. Following was laid down in paragraph 6:-
“6. It should be remembered that the question before us relates to the correct interpretation of a word appearing in a Constitution Act which, as has been said, must not be construed in any narrow and pedantic sense………………………”
55. Another judgment of Constitution Bench of this Court
to be noticed is Navnitlal C. Javeri Vs. K.K. Sen,
Appellate, Assistant Commissioner of Income Tax,
(1965) 1 SCR 909. In the above case, question arose
regarding constitutionality of Section 12(1B) read
with Section 2(6A)(e) of Income Tax Act, 1922. It
was contended before this court that a loan advanced
to a shareholder by the company cannot, in any
legitimate sense, be treated as his income; and so,
the artificial manner in which such dividend is
ordered to be treated as income by the impugned
provision is not justified. It is true that this
Court has laid down that Parliament cannot choose to
tax as income an item which in no rational sense can
be regarded as a citizen’s income. Following was observed:-
“This doctrine does not, however, mean
that Parliament can choose to tax as income an item which in no rational sense
can be regarded as a citizen’s income. The
item taxed should rationally be capable of being considered as the income of a citizen. But in considering the question as to whether a particular item in the hands of a citizen can be regarded as his income or not, it would be inappropriate to apply the tests traditionally prescribed by the Income Tax Act as such.”
56. This Court held that legislature has not travelled
beyond the legislative field while enacting the impugned provision. Following was observed:-
“………………………There must no doubt be some rational connection between the item taxed
and the concept of income liberally
construed. If the legislature realises
that the private controlled companies generally adopt the device of making advances or giving loans to their shareholders with the object of evading the payment of tax, it can step in to meet
this mischief, and in that connection, it
has created a fiction by which the amount ostensibly and nominally advanced to a shareholder as a loan is treated in reality for tax purposes as the payment of dividend to him. We have already explained how a small number of shareholders controlling a private company adopt this device. Having regard to the fact that the legislature was aware of such devices, would it not be competent to the legislature to devise a fiction for treating the ostensible loan as the receipt of dividend? In our opinion, it would be difficult to hold that in making the fiction, the legislature has travelled beyond the legislative field assigned to it by Entry 82 in List I.”
57. In view of what has been laid down by the
Constitution Bench, as above, there has to be a
rational connection between the item taxed but it is
well settled that with regard to taxing policy of the
legislature, the Courts have very limited role to
play. It is useful to refer the observations of this
Court in Sri Krishna Das Vs. Town Area Committee,
Chirgaon, (1990) 3 SCC 645 wherein paragraph 31, following was observed:-
“31. The contention that the tax is discriminatory in view of the exemptions granted to some of the products and to those that enter the TAC by rail or motor transport is equally untenable. It is for the legislature or the taxing authority to determine the question of need, the policy and to select the goods or services for taxation. The courts cannot review these decisions……………….”
58. We have already noted that under Article 246A
notwithstanding anything contained in Articles 246
and 254, Parliament has power to make laws with
respect to goods and services tax. Article 246A is a
special provision with regard to goods and services
tax w.e.f. 16.09.2016, which special power has to be
liberally construed empowering the Parliament to make
laws with respect to goods and services tax. The
submission of learned counsel for the petitioner is
that actionable claim has been artificially and with
a view to assume the power to tax has been included
in Section 2(52). The Constitution Bench of this
Court in Sunrise Associates (supra) has held that
actionable claims are includible in the definition of
goods and had actionable claims were not includible
there was no need for excluding them. The
Constitution Bench held “were actionable claims,
etc., not otherwise includible in the definition of
“goods”, there was no need for excluding them. In
other words, actionable claims are “goods” but not
for the purpose of Sales Tax Acts and but for this
statutory exclusion, an actionable claim would be “goods” or the subject-matter of ownership”.
59. Thus, in view of what has been said above by the
Constitution Bench, the submission of the petitioner
that actionable claims have been artificially
included in the definition of goods cannot be
accepted. The Constitution Bench has clearly laid
down that actionable claims are goods. We, thus, do
not agree with the submission of Shri Shrivastava
that Parliament has exceeded its jurisdiction in
including actionable claims in the definition of “goods” under Section 2(52).
60. We, thus, answer Question Nos.II and III in the following manner:
Answer No.II
61. The inclusion of actionable claim in definition
“goods” as given in Section 2(52) of Central Goods
and Services Tax Act, 2017 is not contrary to the
legal meaning of goods and is neither illegal nor unconstitutional.
Answer NO.III
62. The Constitution Bench judgment of this Court in
Sunrise Associates has laid down that lottery is an
actionable claim as proposition of law. The
observation cannot be said to be obiter dicta.
Question No. IV
63. As noted above, another limb of attack mounted by
Shri Shrivastava is on the ground of hostile
discrimination while taxing lottery, betting and
gambling and excluding other actionable claims.
Reference is made to Item No.6 of Schedule III of
Act, 2017. Schedule III begins with heading
“activities or transactions which shall be treated
neither as supply of goods nor supply of services. Item No.6 of Schedule III is as follows:-
“Item No.6 – Actionable claims other than lottery, betting and gambling.”
64. Submission is that assuming the lotteries to be
actionable claims, the Act, 2017 suffers from a
hostile discrimination in first including actionable
claims within the category of goods and then
excluding all actionable claims from supply of goods
and creating a further exception of lottery, betting
and gambling in Schedule III. Further submission is
that there is no intelligible differentia for
excluding lotteries, betting and gambling from the
other actionable claims, nor does such exclusion have
any nexus with the purpose of the Act. In support
of the above preposition, Shri Shrivastava has relied
on judgment of this Court in Ayurveda Pharmacy and
Anr. Vs. State of Tamil Nadu, (1989) 2 SCC 285 . This
Court in the above case laid down that when the
commodities belong to same class or category, there
must be rational basis for discrimination between one
commodity and other for purpose of imposing the tax.
In paragraph 6 of the judgment, following has been laid down:-
6. ……………It is open to the legislature, or
the State Government if it is authorised
in that behalf by the legislature, to select different rates of tax for different commodities. But where the commodities belong to the same class or category, there must be a rational basis for discriminating between one commodity and another for the purpose of imposing tax. It is commonly known that considerations of economic policy constitute a basis for levying different rates of sales tax. For instance, the object may be to encourage a certain trade or industry in the context of the State policy for economic growth, and a lower rate would be considered justified in the case of such a commodity. There may be several such considerations bearing directly on the choice of the rate of sales tax, and so long as there is good
reason for making the distinction from other commodities no complaint can be made. What the actual rate should be is not a matter for the courts to determine generally, but where a distinction is made between commodities falling in the same category a question arises at once before a court whether there is justification for the discrimination………………………”
65. Another judgment laying down the same preposition as
relied by learned counsel for the petitioner is State
of Uttar Pradesh and Ors. Vs. Deepak Fertilizers &
Petrochemical Corporation Ltd., (2007) 10 SCC 342.
66. There can be no dispute to the above preposition laid
down by this Court. The question to be answered is
as to whether there is any rational reason for taking
out only three actionable claims, i.e., lottery,
betting and gambling while leaving other actionable claims from tax net.
67. Whether there is any rational basis for taking out
only these three actionable claims is a question to
be answered, whether the legislature has created a
hostile discrimination by taxing only these three
whereas leaving other actionable claims out of the tax net.
68. Even before enforcement of the Constitution of India,
there were several legislations by different States
regulating lottery, betting and gambling. Before a
Constitution bench of this court in State of Bombay
Vs. R.M.D. Chamarbaugwala and Anr., AIR 1957 SC 699
,
this Court had occasion to consider the nature of
activities akin to lottery, betting and gambling.
Bombay Lotteries and prize Competition Control and
Tax Act, 1948 was enacted to regulate the tax,
lotteries and prize competition. The petitioner, who
was conducting and running the prize competition from
State of Mysore where entries were received from
various parts of India including the State of Bombay
had challenged the Act, 1948 and the Rules namely
Bombay Lotteries and Prize Competitions Control and
Tax Rules, 1952. The writ petition was allowed by
the High Court, against which State of Bombay had
filed an appeal. The Constitution Bench held the
activity of respondent as activity of gambling
nature. This Court laid down following in paragraphs 41 and 46:-
“41. It will be abundantly clear from the foregoing observations that the activities which have been condemned in this country from ancient times appear to have been equally discouraged and looked upon with disfavour in England, Scotland, the United States of America and in Australia in the cases referred to above. We find it difficult to accept the contention that those activities which encourage a spirit of reckless propensity for making easy gain by lot or chance, which lead to the loss of the hard earned money of the undiscerning and improvident common man and thereby lower his standard of living and drive him into a chronic state of indebtedness and eventually disrupt the peace and happiness of his humble home could possibly have been intended by our Constitution makers to be raised to the status of trade, commerce or intercourse and to be made the subject-matter of a fundamental right guaranteed by Article 19(1)(g). We find it difficult to persuade ourselves that gambling was ever intended
to form any part of this ancient country’s trade, commerce or intercourse to be declared as free under Article 301. It is not our purpose nor is it necessary for us in deciding this case to attempt an exhaustive definition of the word “trade”, “business”, or “intercourse”. We are, however, clearly of opinion that whatever else may or may not be regarded as falling within the meaning of these words, gambling cannot certainly be taken as one of them. We are convinced and satisfied that the real purpose of Articles 19(1)(g) and 301 could not possibly have been to guarantee or declare the freedom of gambling. Gambling activities from their very nature and in essence are extra- commercium although the external forms, formalities and instruments of trade may be employed and they are not protected either by Article 19(1)(g) or Article 301 of our Constitution.
46. For the reasons stated above, we have come to the conclusion that the impugned law is a law with respect to betting and gambling under Entry 34 and the impugned taxing section is a law with respect to tax on betting and gambling under Entry 62 and that it was within the legislative competence of the State Legislature to have enacted it. There is sufficient territorial nexus to entitle the State Legislature to collect the tax from the petitioners who carry on the prize competitions through the medium of a
newspaper printed and published outside
the State of Bombay. The prize
competitions being of a gambling nature,
they cannot be regarded as trade or commerce and as such the petitioners cannot claim any fundamental right under Article 19(1)(g) in respect of such competitions, nor are they entitled to the protection of Article 301. The result, therefore, is that this appeal must be allowed and the orders of the lower courts set aside and the petitions dismissed and we do so with costs throughout. The state will get only one set of costs of hearing of this and Appeals Nos. 135, 136, & 187 of 1956 throughout.”
69. In a later decision, Union of India and Ors. Vs.
Martin Lottery Agencies Limited, (2009) 12 SCC 209 ,
this Court had occasion to consider levy of service
tax on the lottery tickets. This Court had held that
law as it stands today recognises lottery to be
gambling, which is res extra commercium. In paragraph 17, following has been laid down:-
“17. We fail to persuade ourselves to agree with the aforementioned submission.
The law, as it stands today (although it
is possible that this Court in future may
take a different view), recognises lottery
to be gambling. Gambling is res extra commercium as has been held by this Court
in State of Bombay v. R.M.D. Chamarbaugwala [AIR 1957 SC 699] and B.R. Enterprises v. State of U.P. [(1999) 9 SCC 700]”
70. Lottery, betting and gambling are well known concepts
and have been in practice in this country since
before independence and were regulated and taxed by
different legislations. When Act, 2017 defines the
goods to include actionable claims and included only
three categories of actionable claims, i.e., lottery,
betting and gambling for purposes of levy of GST, it
cannot be said that there was no rationale for
including these three actionable claims for tax
purposes. Regulation including taxation in one or
other form on the activities namely lottery, betting
and gambling has been in existence since last several
decades. When the parliament has included above
three for purpose of imposing GST and not taxed other
actionable claims, it cannot be said that there is no
rationale or reason for taxing above three and leaving others.
71. It is a duty of the State to strive to promote the
welfare of the people by securing and protecting, as
effectively as it may, a social order in which
justice, social, economic and political, shall inform
all the institutions of the national life. The
Constitution Bench in State of Bombay Vs. R.M.D.
Chamarbaugwala and Anr. (supra) has clearly stated
that Constitution makers who set up an ideal welfare
State have never intended to elevate betting and
gambling on the level of country’s trade or business
or commerce. In this country, the aforesaid were
never accorded recognition of trade, business or
commerce and were always regulated and taxing the
lottery, gambling and betting was with the objective
as noted by the Constitution Bench in the case of
State of Bombay Vs. R.M.D. Chamarbaugwala and Anr.
(supra), we, thus, do not accept the submission of
the petitioner that there is any hostile
discrimination in taxing the lottery, betting and
gambling and not taxing other actionable claims. The
rationale to tax the aforesaid is easily
comprehensible as noted above. Hence, we do not find
any violation of Article 14 in Item No. 6 of Schedule III of the Act, 2017.
Question No.5
72. The petitioner’s contention is that price money
should be abated from the face value of the lottery
ticket for levy of GST. The prices are paid to the
winner of the lottery ticket by the
distributer/agent. It has been submitted that in the
earlier regime of service tax also for the purposes
of computing service tax the value of service tax was
taken into account as the total face value of the
ticket sold minus the total cost of the ticket and
the prize money paid by the distributor. Further,
service tax was levied at a miniscule rate of 0.82%
and 1.2% as compared to the exorbitant rate of 28%
which is being charged now. The question to be
answered is that while determining the face value of
the ticket for levy of tax the price money of the
ticket is to be excluded. The reliance has also been
placed on the circular dated 14.02.2007 which
provided that the value of taxable service shall be
taken into account at the total face value of the
ticket sold minus (a) the total cost of the ticket
paid by the distributor to the State Government and
(b) price money paid by the distributer. Further,
reliance has been placed on the Constitution Bench
judgment of this Court in M/s. Gannon Dunkerley and
co. and others vs. State of Rajasthan and others,
1993(1) SCC 364, where the Constitution Bench laid
down that the value of the goods involved in
execution of a works contract on which tax is
leviable must exclude the charges which appertain to
the contract for supply of labour and services. The
reliance is placed on paragraph 47 of the judgment which is to the following effect:
“45. Keeping in view the legal fiction introduced by the Forty Sixth Amendment whereby the works contract which are entire and indivisible into one for sale of goods and other for supply of labour and services, the value of the goods involved in the execution of a works contract on which tax is leviable must exclude the charges which appertain to the contract for supply of labour and services. This would mean that labour charges for execution of works item no (i) amounts paid to a sub- contractor for labour and services [item No. (ii), charges for planning, designing and architect’s fees [item No. (iii), charges for obtaining on hire or otherwise machinery and tools used in the execution of a works contact [item No. (iv), and the cost of consumables such as water, electricity, fuel etc. which are consumed in the process of execution of a works contract item No. (v) and other similar expenses for labour and services will have to be excluded as charges for supply of labour and services. …”
73. We may first notice the statutory scheme under the
Act, 2017 and Rules framed thereunder regarding
determination of value of supply. Section 15 of the
Act deals with value of taxable supply. Section 15
(1) to (4) which is relevant for the present case is as follows:
Section 15. (1) The value of a supply of goods or services or both shall be the transaction value, which is the price actually paid or payable for the said supply of goods or services or both where the supplier and the recipient of the supply are not related and the price is the
sole consideration for the supply.
(2) The value of supply shall include––– (a) any taxes, duties, cesses, fees
and charges levied under any law for the time being in force other than this Act, the State Goods and Services Tax Act, the
Union Territory Goods and Services Tax Act and the Goods and Services Tax (Compensation to States) Act, if charged separately by the supplier;
(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in
the price actually paid or payable for the
goods or services or both;
(c) incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and
any amount charged for anything done by the
supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;
(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and
(e) subsidies directly linked to the price excluding subsidies provided by the Central Government and State Governments.
Explanation.––For the purposes of this
subsection, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.
(3) The value of the supply shall not include any discount which is given––
- before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and
- after the supply has been effected, if —(i) such discount is established in terms of an agreement entered into at or before the time of such
supply and specifically linked to relevant
invoices; and
(ii) input tax credit as is attributable to
the discount on the basis of document issued by the supplier has been reversed by
the recipient of the supply.
(4) Where the value of the supply of goods
or services or both cannot be determined under subsection (1), the same shall be determined in such manner as may be prescribed.”
74. The Rules have been framed, namely, the Central Goods
and Services Tax Rules, 2017 in which Rules by
notification dated 23.01.2018 Rule 31A has been
inserted dealing with value of supply in case of
lottery, betting, gambling and horse racing. Article 31A as was inserted provides as follows:
“Section 31A. Value of supply in case of lottery, betting, gambling and horse racing.
(1) Notwithstanding anything contained in
the provisions of this Chapter, the value
in respect of supplies specified below shall be determined in the manner provided
hereinafter.
(2) (a) The value of supply of lottery run
by State Governments shall be deemed to be
100/112 of the face value of ticket or of
the price as notified in the Official Gazette by the organising State, whichever
is higher.
(b) The value of supply of lottery authorised by State Governments shall be deemed to be 100/128 of the face value of
ticket or of the price as notified in the Official Gazette by the organising State, whichever is higher.
Explanation:– For the purposes of this sub
rule, the expressions
(a) ―lottery run by State Governments means a lottery not allowed to be sold in
any State other than the organizing State;
- ―lottery authorised by State Governments‖ means a lottery which is authorised to be sold in State(s) other than the organising State also; and
- ―Organising State has the same meaning
as assigned to it in clause (f) of subrule
(1) of rule 2 of the Lotteries (Regulation)
Rules, 2010.
(3) The value of supply of actionable claim
in the form of chance to win in betting, gambling or horse racing in a race club shall be 100% of the face value of the bet
or the amount paid into the totalisator.”
75. Rule 31A has now been amended vide notification dated
02.03.2020 by which following sub-rule (2) has been substituted:
“Sub-Rule (2). The value of supply of
lottery shall be deemed to be 100/128 of
the face value of ticket or of the price as notified in the Official Gazette by the Organising State, whichever is higher.”
76. We may first deal with submission of the petitioner
based on circular dated 14.02.2007. Circular dated
14.02.2007 was issued when the service tax was levied
on distributor of paper lottery. The circular
provided for determination of value of taxable
service by deducting total cost of ticket paid by the
distributor and price money paid by the distributor,
that was regime when it was treated as business
auxilliary service rendered by distributor. The said
circular has no relevance or application after the 2017 enactment.
77. We may also refer to Constitution Bench judgment of
Gannon Dankerley and Co.(second) where this Court
laid down that value of the goods involved in the
execution of the works contract on which tax is
leviable must exclude the charges which appertain to
the contract for supply of labour and services. As
noted above in paragraph 47 this Court noted items
which were to be excluded while determining the value
of goods involved in the works contract. What was
held by this Court in the above case relates to works
contract which judgment has no application on the
issue which has arisen before us that is abatement of
price money while determining the value of the lottery.
78. For determining the value of the lottery, now, there
is statutory provision contained in Section 15 read
with Rule 31A as noted above. Section 15 of the Act,
2017 by sub-section (2) it is provided what shall be
included in the value of supply. What can be included
in the value is enumerated in sub-clause (a) to (e)
of sub-section (2) of Section 15. Further, sub-
section (3) of Section 15 provides that what shall
not be included in the value of the supply. When
there are specific statutory provisions enumerating
what should be included in the value of the supply
and what shall not be included in the value of the
supply we cannot accept the submission of the
petitioner that prize money is to be abated for
determining the value of taxable supply. What is the
value of taxable supply is subject to the statutory
provision which clearly regulates, which provision
has to be given its full effect and something which
is not required to be excluded in the value of
taxable supply cannot be added by judicial interpretation.
79. Further, Rule 31A as noted above, sub-rule (2) as
amended clearly provides that value of supply shall
be deemed to be 100/128 of the face value of ticket
or of the prize as notified in the Official Gazette
by the Organising State, whichever is higher. Learned
Additional Solicitor General has explained the
working of Rule 31A of Rules by giving an example: “For example, if Rs. 100 is the face value
of lottery ticket, 28% GST is levied only
on Rs.78.125[(100*28)/128]. GST amount
will be 21.875. Therefore, Rs.100 includes
GST of 21.875 on the taxable value of
Rs.78.125. This is a mechanism to split
the face value of Rs.100 in two parts (A
and B). A is the transaction value. B is
GST on A. The formula as above is to come
to A by reverse calculation.”
80. The value of taxable supply is a matter of statutory
regulation and when the value is to be transaction
value which is to be determined as per Section 15 it
is not permissible to compute the value of taxable
supply by excluding prize which has been contemplated
in the statutory scheme. When prize paid by the
distributor/agent is not contemplated to be excluded
from the value of taxable supply, we are not
persuaded to accept the submission of the petitioner
that prize money should be excluded for computing the
taxable value of supply the prize money should be
excluded. We, thus, conclude that while determining
the taxable value of supply the prize money is not to be excluded for the purpose of levy of GST.
81. Learned counsel for the petitioner has also relied on
various taxing statutes of other countries, wherein
the petitioner submits that prize money of the
lottery ticket are not being computing for levy of
tax. He has referred to provisions of United Kingdom-
Value Added Tax, 1994; Excise Tax Act of Canada;
Goods and Services Tax Act of Singapore; Goods and
Services Act, 1985 of New Zealand and Sri Lanka-Value
Added Tax Act, 2002. When the levy of GST,
determination of taxable value are governed by the
Parliamentary Act in this country, we are of the view
that legislative scheme of other countries may not be
relevant for determining the issue which has been
raised before us. The taxing policy and the taxing
statute of various countries are different which are
in accordance with taxing regime suitable and
applicable in different countries. The issue which
has been raised before us has to be answered by
looking into the statutory provisions of the Act,
2017 and the Rules framed therein which govern the field.
82. In the foregoing discussion we are of the view that
the petitioner is not entitled to reliefs as claimed in the writ petition.
83. We may, however, notice that petitioner has prayed
for grant of liberty of challenging the notifications
dated 21.02.2020/02.03.2020 by which rate of GST for
lottery run by the State and lottery organized by the
State have been made the same, which notification has
not been challenged in the writ petition since the
notifications were issued during the pendency of writ
petition. Petitioner has prayed that the said issue
be left open, the notification having not been
challenged in the writ petition liberty be given to
the petitioner to challenge the same in appropriate
proceedings. We accept the above prayer of the
petitioner. The petitioner shall be at liberty to
challenge the notifications dated
21.02.2020/02.03.2020 (challenging the rate of levy
tax uniformally at 28%) separately in appropriate
proceedings. Subject to liberty as above, the writ petition is dismissed.
………………..J.
(Ashok Bhushan)
………………..J.
(R.Subhash Reddy)
………………..J.
(M.R. Shah)
NEW DELHI,
DECEMBER 03, 2020.
