Home › GST Law › Sunrise Associates v. Govt. of NCT of Delhi (2006) 5 SCC 603(SC)/AIR 2006 SC 1908/(2006) 145 STC 576 (SC)

Sunrise Associates v. Govt. of NCT of Delhi (2006) 5 SCC 603(SC)/AIR 2006 SC 1908/(2006) 145 STC 576 (SC)

. Delhi Sales Tax Act, 1975
S. 4: Rates of tax- Lottery tickets –Right to participate in lottery is actionable claim – No sale of goods with in the meaning of the sales tax Act – Whether ratio of H. Anraj is still valid so far as it splits the rights attached to a lottery ticket into right to participate and right to win-former held as goods and latter as actionable claim-whether is a composite right [Constitution of India, Art. 246(3), 366(12), 366(29A) Sale of Goods Act, 1930,
S. 4(1), Transfer of Property Act, 1882, S. 3, 130]

Facts

The Delhi High Court in the case of Haryana State Lotteries vs. Govt. of NCT decided on 17-07-1998 and several other writ petitions held that lottery tickets  as   a whole are goods liable to sales tax. These petitioners challenged this decision before the Supreme Court. In the appeal preferred by Sunrise Associates vs. Govt. of NCT of Delhi, the Delhi High Court referred a question of law to the Constitution Bench of the Supreme Court since it had garnered doubts in respect  of the views expressed in two earlier judgments ofthe Supreme Court namely,

  1. Anraj v. Govt. of TN (1986) 61 STC 165(SC)/(1986) 1 SCC 414 and Vikas Sales Corporation v. CCT (1996) 102 STC 106(SC) (1996) 4 SCC 433, which had affirmed the view in H. Anraj. In H. Anraj’s case, the question was whether lottery tickets are goods liable to sales tax. The Court had held that there were    two rights involved in a lottery ticket namely, (1) right to participate in a lottery draw (2) right to win the prize depending on chance. The second one was chose- in-action i. e. actionable claim and not liable to sales tax whereas the first one     was beneficial right in movable property and liable to sales tax. The High Court  had a doubt whether splitting of rights was correct in case of a lottery ticket. The Delhi High Court however, held the lottery tickets themselves as “goods” relying upon a few statements in the H. Anraj’s judgment.

 

Issues

  • Whether ratio laid down by Anraj’s case is correct law?
  • Whether splitting of rights as right to participate in a draw and right to win being a chance, as ruled in Anraj’s case iscorrect?
  • If yes, then whether the first right is beneficial right in movable property and hence, ‘goods’ liable to sales tax and second right is actionable claim out of the purview of sales tax?

 

 

  • Whether is it possible to infer that the case of H. Anraj stipulated that lottery tickets themselves are “goods” due to ambiguous language used in it?

 

Held

The Court after thoroughly perusing H. Anraj’s case, concluded that Court in that case clearly distinguished the two rights embodied in a lottery ticket. The first  right of participation in the draw alone was right in praesentio and liable to sales tax being “goods”. The second right was in futuro dependent on a contingency and was only actionable claim not liable to sales tax. The states who had jettisoned   this reasoning and treated lottery ticket itself as “goods” had committed an error.

The Court observed that almost in all states, the definition of “goods” did not include actionable claims although they have all characteristics of “goods”. A lottery ticket is a piece of paper evidencing a chance or right to a conditional benefit to receive 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.

The Court referred to the definition of “actionable claims” in section 3 of the Transfer of Property Act and inferred that purchaser of lottery ticket  gains a claim  to a conditional interest in the prize money which is not in possession of the purchaser and hence, it is an actionable claim. But the Court observed that further distinction of rights sought by H. Anraj’s case is totally unwarranted. A lottery being a chance to win a prize, in essence is only that chance. Every right can be sub-divided into lesser rights. There is no value in the mere right to participate      in the draw and the purchaser does not pay for the right only 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 chanceto win and is therefore, a part of the actionable claim.

The Court came to the conclusion that there is one inseparable right in a lottery ticket which is an actionable claim not liable to sales tax.

The case of Vikas Sales Corporation was also included in the reference made by Delhi High Court because it affirmed the decision in H. Anraj. The Supreme Court declined to comment on the ratio of the said decision since the question whether REP licenses are goods or not was not referred to them directly. (CA Nos. 4552, 4553-4557, 4913 and 6256-6260 of 1998 & Ors dt. 28-04-2006)

Editorial : Under CGST/SGST Act, the definition of “goods” under section 2(52) includes actionable claims. The difference between actionable claims and other goods is clearly brought out by this judgment. However, Schedule III makes all actionable claims other than lottery, betting and gambling, as not liable to GST.

“What is obtained by love is retained for all time. What is obtained by hatred proves a burden in reality for it increases hatred.”

– Mahatma Gandhi