03 Dec 2020

The inclusion of actionable claim in the definition of goods in Section 2(52) of Central Goods and Services Tax Act, 2017 is legal and constitutional - Supreme Court of India

Case : Skill lotto solutions Pvt. Ltd. v. Union of India & Ors. Writ Petition (Civil) No. 961 of 2018

Court : Supreme Court of India

Bench : Justice Ashok Bhushan, Justice R.Subhash Reddy and Justice M.R. Shah

Decided on : 03 Dec 2020

Relevant Statutes

Articles 32, 14, 301 and 304 of the Constitution of India

Constitution (One Hundred and First Amendment) Act, 2016

Sections 2(52) and 15 of the Central Goods and Services Tax Act, 2017

Central Goods and Services Tax Rules, 2017

Lotteries (Regulation) Act, 1998

Brief Facts and Procedural History

1. The Parliament enacted the Lotteries (Regulation) Act, 1998 to regulate the lotteries and to provide for matters connected therewith and incidental thereto. The different States have been organizing and conducting lotteries in accordance with the aforesaid Act. 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.

2. Service tax was levied on lottery tickets by Finance Act, 1994. A Circular dated 14/21.2.2017 was also issued providing for the mode of determination of the amount of service tax. Lotteries (Regulation) Rules, 2010 by the Central Government containing a set of rules for the regulation of the lotteries organized by the States.

3. By Constitution (One Hundred and First Amendment) Act, 2016, Article 246A, 269A, 279A was inserted in the Constitution containing special provisions with respect to Goods and Services Tax.

4. The Parliament also enacted the following laws:

a. Central Goods and Services Tax Act, 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 concerning matters thereto.

b. Integrated Goods and Services Tax Act, 2017

c. Union Territory Goods and Services Tax Act, 2017

d. Goods and Services Tax (Compensation to States) Act, 2017.

5. A notification was issued by the Government of India dated 28.06.2017 in the exercise of the power conferred by Section 9(1), Central Goods and Services Tax Act, 2017 notifying the rate of the integrated tax. By the notification with regard to lottery run by the State Government, the 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 the supply of the lottery was deemed to be 100/128.

6. The petitioner, an authorized agent, for sale and distribution of lotteries organized by the 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 a tax on lotteries. The petitioner seeks a declaration that the levy of tax on the lottery is discriminatory and violative of Articles 14, 301 and 304 of the Constitution of India.

7. The petitioner has challenged the provisions of the Central Goods and Services Tax Act, 2017 insofar as it imposes a tax on the lottery. The grounds of the 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 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.

The Issues of the Case

Whether the writ petition is not maintainable under Article 32 of the Constitution of India since the writ petition relates to a lottery, which is res extra commercium and the petitioner cannot claim protection under Article 19(1)(g)?

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?

Whether the exclusion of lottery, betting and gambling from Item No.6 of Schedule III of Central Goods and Services Tax Act, 2017 is hostile discrimination and violative of Article 14 of the Constitution of India?

Whether while determining the face value of the lottery tickets for levy of Goods and Services Tax (GST), prize money is to be excluded for purposes of levy of GST?

The Observations of the Court

1. The writ petition is maintainable as with regard to the matter of lottery, the Supreme Court had earlier entertained writ petitions under Article 32. The cases of H. Anraj and Ors. Vs. State of Maharashtra, (1984) 2 SCC 292 and H. Anraj Vs. Government of Tamil Nadu, (1986) 1 SCC 414 were instances.

2. Section 2(7) of the Sale of Goods Act, 1930 defines goods as “goods” which means every kind of movable property other than actionable claims and money; whereas Section 2(52) Central Goods and Services Tax Act, 2017 define goods as every kind of movable property other than money and securities “but includes actionable claim”.

2. Definition of goods in Article 366 (12) is an inclusive definition and does not specifically exclude the actionable claim from its definition. Whenever an inclusive definition is given of an expression it always intended to enlarge the meaning of words or phrases, used in the definition. The observations made in Reserve Bank of India vs. Peerless General Finance and Investment co. Ltd. And others, 1987 (1) SCC 424 was relied upon in this context.

3. When the Parliament has been conferred power to make law with respect to goods and services under Article 246A, the legislative power of the Parliament is plenary. The observations of this Court in the State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., 1959 (SCR) 329 are a 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.

4. In H. Anraj and Ors. Vs. Government of Tamil Nadu and Ors, (1986) 1 SCC 424 it was laid down: 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, and to that extent they are not actionable claims and that in every sale thereof a transfer of property in the goods is involved. Given these conclusions, the impugned Amendments made in the two concerned Acts for levying tax on the sale of lottery tickets are upheld as falling within the legislative competence of the concerned State legislature under Entry 54 of List II in the Seventh Schedule.

5. The Constitution Bench was constituted in Sunrise Associates vs. Govt. of NCT of Delhi and others, (2006) 5 SCC 603 to reconsider the decision in H. Anraj and Ors. Vs. Government of Tamil Nadu and Ors, (1986) 1 SCC 424. It was observed that:

a. 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.

b. All the statutory definitions of the word 'goods' in the State Sales Tax Laws have uniformly excluded, inter alia, actionable claims from the definition of the Act. Where actionable claims etc., are 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 Sales Tax Acts.

c. A sale of a lottery ticket also amounts to the transfer of an actionable claim.

d. In H. Anraj and Ors. Vs. Government of Tamil Nadu and Ors, (1986) 1 SCC 424 it was incorrectly held that a sale of a lottery ticket involved a sale of goods.

6. 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 concluded 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.

7. The Constitution Bench in Sunrise Associates vs. Govt. of NCT of Delhi and others, (2006) 5 SCC 603 has categorically held that lottery is actionable claim after due consideration which is the ratio of the judgment. When Section 2(52) of Central Goods and Services Act, 2017 expanded the definition of goods by including actionable claim also, it is in the line with the Constitution Bench pronouncement in Sunrise Associates. It neither violates any constitutional provision nor is it in conflict with the definition of goods given under Article 366 (12).

8. The Parliament by the Constitution (One Hundred and First Amendment) Act, 2016 inserted Article 246A, that is a special provision with respect to goods and services tax which empowered the Parliament to make laws with respect to goods and services tax; and expansive definition of goods in Section 2(52) cannot be said to be not in accord with the constitutional provisions.

9. 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.

10. The State must strive to promote the welfare of the people by effectively securing and protecting 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, AIR 1957 SC 699 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 a country's trade or business or commerce. Thus, lottery, betting and gambling were always regulated and taxed with the aforementioned objective and there is no hostile discrimination in taxing the lottery, betting and gambling and not taxing other actionable claims. Hence, there is no violation of Article 14 in Item No. 6 of Schedule III of the Central Goods and Services Act, 2017.

11. For determining the value of the lottery, there is a statutory provision contained in Section 15, Central Goods and Services Act, 2017 read with Rule 31A, Central Goods and Services Tax Rules, 2017. When specific statutory provisions are enumerating what should be included in the value of the supply and what shall not be included in the value of the supply; prize money cannot be abated for determining the value of taxable supply as sought by the petitioner. What is the value of taxable supply is subject to the statutory provision and cannot be added by judicial interpretation? Rule 31A, sub-rule (2) provides that value of supply shall be deemed to be 100/128 of the face value of the ticket or the prize as notified in the Official Gazette by the Organising State, whichever is higher.

12. It is not permissible to compute the value of taxable supply by excluding prize which has been contemplated in the statutory scheme. Thus, while determining the taxable value of supply the prize money is not to be excluded for levy of Goods and Services Tax.

13. The petitioner, thus, is not entitled to reliefs as claimed in the writ petition.

The Decision Held by the Court

1. The Supreme Court dismissed the writ petition

2. The prayer of the petitioner for grant of liberty of challenging the notifications dated 21.02.2020/02.03.2020 was issued during the pendency of writ petition to challenge the rate of levy tax uniformly at 28% was accepted.

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