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Introduction
At the outset it needs to be stated that the question of
levying of sales tax on sale of lottery tickets has been raised
time and again. To reach to a definite conclusion it is
imperative
that we look into the provisions of Constitution in details with
regard to the same.
Under the Constitution
Separation of powers between the
Union (Centre) and its Constituents (that is the States) have
been
explicitly dealt with in Seventh Schedule whereby the subjects
on
which the Union and the State can legislate have been
segregated.
Entry 54 of List II of the Seventh Schedule (which deals with
state subjects) read with Article 246(3), the Constitution has
empowered the State to make laws with respect to
taxes on the sale or purchase of goods
other than newspapers subject to the provision of Entry
92A of
List I (dealing with Union subjects) whereby the same is not
allowed by the State if it involves inter-State trade or
commerce.
Thus, taxes on sale of goods other than newspapers etc can be
levied by the State Governments only.
However, in The State of
Madras v. Gannon Dunkerley & Co. the phrase
sale of goods became the subject of
scrutiny. The expression as defined in Section 4(1) of the Sale
of
Goods Act, 1930 was given a narrow interpretation as it included
only those sales whereby:
1. An agreement was to transfer title,
2. It was supported by consideration and ,
3. An actual transfer of title took place.
To undo this rigor, Clause
29A
was added to Article 366 which mentions of six particular
transactions which have been included to increase the scope of
expression sale of
goods.
One of
those transactions
reads as follows:
(d) a tax on the transfer of the right to use any goods for any
purpose (whether or not for a specified period) for cash,
deferred
payment or other valuable consideration
The contention that Article
366(29A)(d) involves a sale of
goods when a lottery ticket is
sold was raised in the case of H.Anraj v,
Government of Tamil Nadu
(1985).The two Judge Bench while deciding the case held that the
lottery ticket involved two kinds of rights viz:
1. Right to participate in lottery draw and
2. Right to win the prize depending on chance (that is a
contingent interest in money).
The second right while was a
?chose in action? and hence not goods, the first was a transfer
of beneficial interest in moveable goods and hence was liable to
be taxed. Therefore, sales tax could be levied on sale of
lottery
tickets by the State.
However, this decision was
challenged in the case of Sunrise Associates v. Government of
National Capital Territory of Delhi and others (1999), where it
was contended that the Right to purchase a lottery ticket was
nothing more than an actionable
claim
within the meaning of Section 3 of the Transfer of Property Act,
1882 and therefore outside the definition of goods under Sales Tax Acts.
On
April 28, 2006 while
delivering the judgment settling the issue Justice Ruma Pal and
others held that:
1. The distinction drawn in the above mentioned
H. Anraj's case was
undesirable and
2. That lottery tickets were ?actionable claim? and hence not
susceptible to Sale Tax by State.
Hence, in the light of the
above discussion it can be stated that the action of Sales Tax
authorities against the proceeds from sale of lottery tickets is
untenable in law.
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Can
Sales Tax be levied on sale of Lottery
Tickets?
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The
author can be reached at: singhi.poonam@legalserviceindia.com /
