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Judgment
T.S. Thakur, C.J.—In H. Anraj Vs. Government of Tamil Nadu, the question that fell for consideration of the Supreme Court was whether
sales tax can be levied by States on the sale of lottery tickets. A Bench comprising two judges of the Supreme Court held that a lottery involved (i)
the right to participate in the lottery draw, and (ii) the right to win the prize, depending on chance. The court further held that while the second right
was a chose-in-action and not ""goods"" for the purpose of levy of sales tax, the first was a transfer of a beneficial interest in movable goods and
was a sale within the meaning of Article 366(29A)(a) of the Constitution so to be amenable to the levy of sales tax. The correctness of the said
view was examined by a Constitution Bench of the Supreme Court in Sunrise Associates Vs. Govt. of NCT of Delhi and Others, Their Lordships
on a comprehensive review of the case law on the subject came to the conclusion that a lottery has no value in itself. It was a mere piece of paper
and that its value lay in the fact that it represents a chance or a right to a conditional benefit of winning a prize of a greater value than the
consideration paid for the transfer of that chance. It was, therefore, nothing more than a token or evidence of this right. The court also held that the
distinction sought to be drawn in H. Anraj Vs. Government of Tamil Nadu, between the chance to win and the right to participate in the draw was
unwarranted. A lottery in essence being only a chance to win a prize, the sale of a lottery ticket can only be a sale of that chance. Every right,
observed the court, could be sub-divided into lesser rights. When these lesser rights culminate in a legally recognizable right, it is the latter which
defines the right. The right to participate in the draw is a part of the composite right of the chance to win and it does not feature separately in the
definition of the word ""lottery"". It was implicit in the chance to win. The court held that there was no distinction between the two rights. The ratio of
the decision in the case of H. Anraj Vs. Government of Tamil Nadu, was accordingly overruled but only prospectively, i.e., with effect from the
date of judgment delivered by their Lordships in Sunrise Associates Vs. Govt. of NCT of Delhi and Others, The following passages from the said
decision are in this regard apposite (at pages 168, 169, 170, 171 of 3 VST):
A lottery ticket has no value in itself. It is a mere piece of paper. Its value lies in the fact that it represents a chance or a right to a conditional
benefit of winning a prize of a greater value than the consideration paid for the transfer of that chance. It is nothing more than a token or evidence
of this right. The court in H. Anraj Vs. Government of Tamil Nadu, as we have seen, held that a lottery ticket is a slip of paper or memoranda
evidencing the transfer of certain rights. We agree.
...
The further distinction sought to be drawn in H. Anraj Vs. Government of Tamil Nadu, between the chance to win and the right to participate
in the draw was in our opinion unwarranted. A lottery having been held to be in essence a chance for a prize, the sale of a lottery ticket can only be
a sale of that chance. There is no other element. Every right can be sub-divided into lesser rights. When these lesser rights culminate in a legally
recognizable right, it is the latter which defines the right. The right to participate in the draw is a part of the composite right of the chance to win and
it does not feature separately in the definition of the word ''lottery''. It is an implicit part of the chance to win. It is not a different right. The
separation is specious since neither of the rights can stand without the other. A draw without a chance to win is meaningless and one cannot claim a
prize without participating in the draw. In fact the transfer of the chance to win assumes participation in the draw....
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.
...
We are, therefore, of the view that the decision in H. Anraj Vs. Government of Tamil Nadu, incorrectly held that a sale of a lottery ticket
involved a sale of goods. There was no sale of goods within the meaning of the 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.
Relying upon the decision of the Supreme Court in the above case, the petitioners in this bunch of cases have called in question the constitutional
validity of Section 45(1) and Schedule G of the Haryana Value Added Tax Act, 2003 (for short, ""the VAT Act"") to the extent the same authorises
levy of tax at 20 per cent of the face value of the lottery ticket where the face value of the lottery ticket is more than Rs. 7. In all these cases, the
petitioners have also assailed the validity of the order of assessment made by the Assessing Authority concerned and those passed in appeal by the
Appellate Authority including the Haryana Tax Tribunal.
Appearing for the petitioners M/s. Avneesh Jhingan and Sunish Bindlish argued that the legal position as regards the nature of sale and purchase
of a lottery ticket stands authoritatively determined by the Supreme Court in Sunrise Associates Vs. Govt. of NCT of Delhi and Others, They
urged that the Supreme Court has in unequivocal terms declared that the sale of lottery ticket does not constitute ""sale of goods"" within the meaning
of Article 366(29A)(a) of the Constitution so as to be amenable to the levy of any such tax under the provisions of the Sales Tax Act or VAT Act
as in the instant cases. It is also contended that since the law declared in Sunrise Associates Vs. Govt. of NCT of Delhi and Others, applies only
prospectively, i.e., from the date of decision delivered by their Lordships on April 28, 2006, the position of law before that date shall be deemed
to be what was held in H. Anraj Vs. Government of Tamil Nadu, It is submitted that according to the said decision the sale of a lottery ticket had
two distinct components, one that is taxable involving the sale of goods and the other that is non-taxable being only a transfer of an actionable
claim. The Assessing Authority including the Tribunal, in the instant cases, had levied tax on the face value of the lottery ticket, keeping in view the
provisions of Section 45(1) read with Schedule G to the VAT Act, and thereby committed a mistake apparent on the face of the record rendering
the assessment unsustainable. It was submitted that if the law declared in the case of H. Anraj Vs. Government of Tamil Nadu, was to be applied
in the present cases, the Assessing Authority shall have to necessarily assess the sale in question by suitably splitting the value of the lottery ticket
into what was taxable and what was not. This exercise had not been undertaken by the Assessing Authority obviously because the assessment
order proceeded on the basis of the provisions contained in Schedule G of VAT Act which gave a totally different touchstone for such assessment.
It was urged that while the present bunch of cases did not relate to the period post-decision in Sunrise Associates Vs. Govt. of NCT of Delhi and
Others, for the period prior to the said decision, the matter shall have to be remitted back to the Assessing Authority for passing an appropriate
order of assessment keeping in view the law declared by the Supreme Court in H. Anraj Vs. Government of Tamil Nadu, It is also submitted that
the petitioners may also be entitled to claim refund of the amount of tax paid by them subject to their being able to prove to the satisfaction of the
Assessing Authority that they had not passed on the tax to the purchaser of the lottery ticket. It is urged on the authority of Manchanda Soap Mills,
Moga v. State of Punjab [2004] 23 P&H 311, that the presumption that a tax which is paid by the assessee has been passed on to the consumer
is rebuttable in nature and could, therefore, be rebutted by the assessee by producing suitable evidence to the satisfaction of the Assessing
Authority.
On behalf of the respondents, Mr. Rameshwar Malik, Additional Advocate-General, Haryana, submitted that long before the legal position
came to be settled by the Constitution Bench of the Supreme Court, the State of Haryana had banned the sale of lottery tickets in the State of
Haryana somewhere in the year 2005. At any rate, the question whether or not any tax was recoverable from the petitioners did not call for
consideration for the period post April, 2006 when the decision in Sunrise Associates Vs. Govt. of NCT of Delhi and Others, was delivered. In so
far as the earlier period was concerned, the law as declared by the Supreme Court in H. Anraj Vs. Government of Tamil Nadu, still held the field
as their Lordships of the Supreme Court have specifically directed that the decision in H. Anraj Vs. Government of Tamil Nadu, would stand
overruled only prospectively. This, according to the learned Counsel for the petitioners, implies that the law as declared in H. Anraj Vs.
Government of Tamil Nadu, was the law of the land during the period with which we are concerned in these petitions. Consequently, a part of the
sale price involving sale of lottery tickets was taxable as the sale of such tickets involves not only sale of actionable claim but also sale of goods as
held by the Supreme Court in H. Anraj Vs. Government of Tamil Nadu, Reliance was also placed by Mr. Malik upon the decision of the High
Court of Karnataka in Nirmal Agency v. Commercial Tax Officer [1992] 86 STC 450 to argue that sales tax could be levied on that part of the
sale of lottery ticket which amounted to a sale or transfer of goods.
We have given our careful consideration to the submissions made at the bar. The material facts are not in dispute. It is not in dispute that the
Assessing Authority has in the instant cases held the petitioners liable to pay sales tax on the face value of the lottery tickets taking into
consideration the provisions of Section 45(1) and Schedule G of the VAT Act. It is also not in dispute that any such assessment would, in the light
of the law declared by the Supreme Court in H. Anraj Vs. Government of Tamil Nadu, be bad having regard to the fact that the Supreme Court
has in the said case declared only a part of the sale transaction to be tantamount to transfer of goods while the rest is not. The legal position post
Sunrise Associates Vs. Govt. of NCT of Delhi and Others, however, is totally different inasmuch as the Supreme Court has declared that the sale
of lottery ticket is in no way sale of goods but keeping in view the fact that the said decision has been held to be operative only prospectively, the
law as declared by the Supreme Court in H. Anraj Vs. Government of Tamil Nadu, would continue to hold the field. That being so, the assessment
orders will have to be so tailored as to comply with the ratio of the decision in H. Anraj Vs. Government of Tamil Nadu, . That is precisely what
appears to have been done in Nirmal Agency''s case [1992] 86 STC 450, in which the High Court of Karnataka has, keeping in view the law
declared in the decision of the Supreme Court in H. Anraj Vs. Government of Tamil Nadu, , directed the matter to be re-examined by the
Assessing Authority to determine how much of the sale consideration was referable to the right to participate in the draw and how much to the
chance of winning and to assess the dealer accordingly. In the circumstances, we are left with no alternative but to set aside the orders of
assessment made by the Assessing Authority, the appellate authority as also the Tribunal and to remand the case back to the Assessing Authority
with the direction that it shall make a fresh assessment of the liability of the petitioner-dealers, having regard to the observations made by the
Supreme Court in H. Anraj Vs. Government of Tamil Nadu, . While doing so, the Assessing Authority shall be free to examine whether the
petitioners are entitled to any refund subject to their producing evidence to the satisfaction of the Assessing Authority to the effect that they had not
passed on the tax to the purchasers of the lottery tickets. It goes without saying that the provisions of Schedule G to Section 45(1) of the VAT Act
shall be so interpreted as to be in conformity with the observations made by the Supreme Court in H. Anraj Vs. Government of Tamil Nadu, ,
implying thereby that the face value of the lottery tickets shall no longer constitute the basis of assessment of the tax liability. The needful shall be
done by the Assessing Authority expeditiously, but not later than six months from the date a copy of the order is received by it. All other questions
raised in these petitions are left open. No costs.