SKILL LOTTO SOLUTIONS PVT. LTD. versus UNION OF INDIA & ORS. on 3 December 2020

[2020] 13 S.C.R. 151

SKILL LOTTO SOLUTIONS PVT. LTD.

v.

UNION OF INDIA & ORS.

(Writ Peition (Civil) No. 961 of 2018)

DECEMBER 03, 2020

[ASHOK BHUSHAN, R. SUBHASH REDDY AND

M. R. SHAH, JJ.]

Constitution of India: Art.32 – Writ petition alleging violationof Art.14 and impugning the definition of ‘goods’ under s.2(52) ofthe Central Goods and Services Tax, 2017 – Maintainability of –Held: Maintainable – Writ petition alleging violation of Art.14specially with respect to a parliamentary Act can be entertainedunder Art.32.

Central Goods and Services Tax Act, 2017: s.2(52) – Whetherthe inclusion of actionable claim in the definition of goods as givenin s.2(52) of the Act, 2017 is contrary to the legal meaning of goodsand unconstitutional – Held: Art.366(12) defines goods to includeall materials, commodities, and articles – Definition of goods asoccurring in Art.366(12) is inclusive definition and does notspecifically exclude actionable claim from its definition – Wheneverinclusive definition is given of an expression, it always intends toenlarge the meaning of words or phrases, used in the definition –The definition of goods as contained in the Sale of Goods Act, 1930in s.2(7) is every kind of movable property other than actionableclaims and money; whereas definition of goods in s.2(52) in theAct, 2017 is every kind of movable property other than money andsecurities “but includes actionable claim” – Thus, the Constitutionframers were aware of the definition of goods as occurring in theSale of Goods Act, 1930 when the Constitution was enforced – Byproviding an inclusive definition of goods in Art.366(12), theConstitution framers never intended to give any restrictive meaningto the word “goods” – Thus, the definition of goods under s.2(52)of the Act, 2017 does not violate any constitutional provision nor itis in conflict with the definition of goods given under Art.366(12) –Art.366 clause (12) contains an inclusive definition and thedefinition given in s.2(52) of Act, 2017 is not in conflict with

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Adefinition given in Art.366(12) – The Parliament by the Constitution(One Hundred and First Amendment) Act, 2016 inserted Art.246A,a special provision with respect to goods and services tax – Art.246Abegins with non obstante clause, that is, “Notwithstanding anythingcontained in Arts.246 and 254”, which confers very wide power tomake laws – The power to make laws as conferred by Art.246ABfully empowers the Parliament to make laws with respect to goodsand services tax and expansive definition of goods given in s.2(52)cannot be said to be not in accord with the constitutional provisions.

Central Goods and Services Tax Act,2017:Whether theConstitution Bench in Sunrise Associates in paragraphs 33, 40, 43Cand 48 of the judgment has laid down as the proposition of law thatlottery is an actionable claim or the observations made in thejudgment were only an obiter dicta and not declaration of law –Held: It cannot be said that the question as to whether lottery is agoods or actionable claim had not arisen in the decision in SunriseDAssociates –When an item was held to be covered by excludedcategory, the said conclusion could have been arisen only afterconsideration of the definition and the exclusionary clause – Thus,the submission for the petitioner that the observations of theConstitution Bench holding lottery as actionable claim was onlyobiter dicta and not binding is not correct – The Constitution BenchEin Sunrise Associates categorically held that lottery is actionableclaim after due consideration which is ratio of the judgment.

Conclusion

Central Goods and Services Tax Act, 2017: Art.14 – Whetherexclusion of lottery, betting and gambling from Item No.6 ScheduleIII of the Act, 2017 is hostile discrimination and violative of Art.14Fof the Constitution of India – Held: When Act, 2017 defines thegoods to include actionable claims and included only threecategories of actionable claims, i.e., lottery, betting and gamblingfor purposes of levy of GST, it cannot be said that there was norationale for including these three actionable claims for tax purposesG– Regulation including taxation in one or other form on the activitiesnamely lottery, betting and gambling has been in existence sinceseveral decades – When the parliament has included these threefor purpose of imposing GST and not taxed other actionable claims,it cannot be said that there was no rationale or reason for taxingthe three and leaving others – Constitution of India – Art.14.H

Central Goods and Services Tax Act, 2017: s.15 – Whetherwhile determining the face value of the lottery tickets for levy ofGST, prize money is to be excluded for purposes of levy of GST –Held: The value of taxable supply is a matter of statutory regulationand when the value is to be transaction value which is to bedetermined as per s.15, it is not permissible to compute the value oftaxable supply by excluding prize which has been contemplated inthe statutory scheme – Central Goods and Services Tax Rules –r.31A.

Interpretation of statutes: Whenever inclusive definition isgiven of an expression it is intended to enlarge the meaning of wordsor phrases, used in the definition – Central Goods and ServicesTax, 2017.

Judicial review: Taxation policy – With regard to taxing policyof the legislature, the Courts have very limited role to play.

Dissmissing of the writ petition, the Court HELD: 1. Maintainability of Art.32: Article 32 confers aright to move to Supreme Court for enforcement of the rightconferred by the Part III, which is guaranteed by sub-article (1)of Article 32 of the Constitution. Article 32 is an important andintegral part of the basic structure of the Constitution. Article 32is meant to ensure observance of rule of law. Article 32 providesfor the enforcement of the fundamental rights, which is mostpotent weapon. By this petition, the petitioner has challengedthe provisions of Central Goods and Services Tax Act, 2017 insofaras it imposes tax on the lottery. The grounds of challenge includeviolation of Article 14 of the Constitution of India. The levy ofGST has been attacked as discriminatory. It is also submittedthat there is a hostile discrimination in taxing only lottery, bettingand gambling whereas leaving all other actionable claims fromthe taxing net as is evident by entry 6 of Schedule III of Act,2017. The writ petition alleging the violation of Article 14 speciallywith respect to a parliamentary Act can very well be entertainedunder Article 32. [Paras 14, 15, 16][168-B-G]

H. Anraj and Ors. v. State of Maharashtra, (1984) 2SCC 292 : [1984] 2 SCR 440; H. Anraj v. Government AB

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Aof Tamil Nadu, (1986) 1 SCC 414: [1985] 3 Suppl. SCR342 – referred to.

Whether the inclusion of actionable claim in the definitionof goods as given in Section 2(52) of Central Goods and ServicesTax Act, 2017 is contrary to the legal meaning of goods andBunconstitutional?

Whether the Constitution Bench judgment of this Court inSunrise Associates in paragraphs 33, 40, 43 and 48 of thejudgment has laid down as the proposition of law that lottery is anactionable claim or the observations made in the judgment wereonly an obiter dicta and not declaration of law?C

Obiter dicta

2.1 Article 366 sub-clause (12) defines goods. Goodsincludes all materials, commodities, and articles. Definition ofgoods as occurring in Article 366(12) is inclusive definition anddoes not specifically excludes actionable claim from its definition.Whenever inclusive definition is given of an expression it alwaysDintended to enlarge the meaning of words or phrases, used in thedefinition. The definition of goods as contained in the Sale of GoodsAct, 1930 in Section 2(7) is every kind of movable property otherthan actionable claims and money; whereas definition of goods inSection 2(52) in the Act, 2017 is every kind of movable propertyEother than money and securities “but includes actionable claim”.The Constitution framers were well aware of the definition ofgoods as occurring in the Sale of Goods Act, 1930 when theConstitution was enforced. By providing an inclusive definitionof goods in Article 366(12), the Constitution framers neverintended to give any restrictive meaning of goods. [Paras 20, 24,F33, 34][169-G-H; 170-A-B; 175-E-F; 170-F-G; 176-C]

Reserve Bank of India v. Peerless General Finance andInvestment co.Ltd. And others, 1987(1) SCC 424: [1987]2 SCR 1 – followed State of Madras v. Gannon Dunkerley & Co., (Madras)GLtd., [1959] SCR 329; M/s Gannon Dunkerley and Co.and Others v. State of Rajasthan and others, 1993 (1)SCC 364 : [1992] 3 Suppl. SCR 103 – heldinapplicable 2.2 It cannot be said that the question as to whether lotteryHis a goods or actionable claim had not arisen in the decision in Sunrise Associates. When an item was covered by excludedcategory, the said conclusion could have been arisen only afterconsideration of the definition and the exclusionary clause. TheConstitution Bench in Sunrise Associates has categorically heldthat lottery is actionable claim after due consideration which isratio of the judgment. [Para 48][182-D-F]

Sunrise Associates v. Govt. of NCT of Delhi and Ors.(2006) 5 SCC 603:[2006] 1 Suppl. SCR 421 –Explained 2.3 Article 366(12) contains an inclusive definition and thedefinition given in Section 2(52) of Act, 2017 is not in conflictwith definition given in Article 366(12). The Parliament by theConstitution(One Hundred and First Amendment) Act, 2016inserted Article 246A, a special provision with respect to goodsand services tax. The Parliament was fully empowered to makelaws with respect to goods and services tax. Article 246A beginswith non obstante clause that is “Notwithstanding anythingcontained in Articles 246 and 254”, which confers very wide powerto make laws. The power to make laws as conferred by Article246A fully empowers the Parliament to make laws with respectto goods and services tax and expansive definition of goods givenin Section 2(52) cannot be said to be not in accord with theconstitutional provisions. There has to be a rational connectionbetween the item taxed but it is well settled that with regard totaxing policy of the legislature, the Courts have very limited roleto play. Article 246A is a special provision with regard to goodsand services tax w.e.f. 16.09.2016, which special power has to beliberally construed empowering the Parliament to make laws withrespect to goods and services tax. [Paras 49, 57, 58][182-G-H;183-A-C; 186-C-D; 186-F-G]

Navnitlal C. Javeri v. K.K. Sen, Appellate, AssistantCommissioner of Income Tax, [1965] 1 SCR 909; Stateof Bombay v. R.M.D. Chamarbaugwala and Anr., AIR1957 SC 699: [1957] SCR 874 – relied on.

Bhopal Sugar Industries Ltd., M.P. and Anr. v. D.P.Dube, Sales Tax Officer and Anr., [1964] 1 SCR 481;M/s. Gannon Dunkerley and co. and others v. State ofRajasthan and others, 1993 (1) SCC 364:[1992]3 Suppl. SCR 103 – distinguished.

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A2.4 The Constitution Bench of this Court in SunriseAssociates has held that actionable claims are includible in thedefinition of goods and had actionable claims were not includible,there was no need for excluding them. In other words, actionableclaims are “goods” but not for the purpose of Sales Tax Acts andbut for this statutory exclusion, an actionable claim would beB“goods” or the subject-matter of ownership”. Thus, in view ofwhat has been said above by the Constitution Bench, thesubmission of the petitioner that actionable claims have beenartificially included in the definition of goods cannot be accepted.The Constitution Bench has clearly laid down that actionableCclaims are goods. Thus, Parliament has not exceeded itsjurisdiction in including actionable claims in the definition of“goods” under Section 2(52). [Paras 58, 59][186-G-H; 187-A-C]

Whether exclusion of lottery, betting and gambling fromItem No.6 Schedule III of Central Goods and Services Tax Act,D2017 is hostile discrimination and violative of Article 14 of theConstitution of India?

3. Schedule III begins with heading “activities ortransactions which shall be treated neither as supply of goodsnor supply of services. Item No.6 of Schedule III is as follows:-E”Item No.6 – Actionable claims other than lottery, betting andgambling.” Lottery, betting and gambling are well known conceptsand have been in practice in this country since beforeindependence and were regulated and taxed by differentlegislations. When Act, 2017 defines the goods to includeactionable claims and included only three categories of actionableFclaims, i.e., lottery, betting and gambling for purposes of levy ofGST, it cannot be said that there was no rationale for includingthese three actionable claims for tax purposes. Regulationincluding taxation in one or other form on the activities namelylottery, betting and gambling has been in existence since lastGseveral decades. When the parliament has included above threefor purpose of imposing GST and not taxed other actionableclaims, it cannot be said that there is no rationale or reason fortaxing above three and leaving others. Hence, there is noviolation of Article 14 in Item No. 6 of Schedule III of the Act,2017. [Paras 63, 70, 71][187-F-G; 191-B-D; 191-G]H

Whether while determining the face value of the lotterytickets for levy of GST, prize money is to be excluded for purposesof levy of GST?

4.1 The Rules have been framed, namely, the Central Goodsand Services Tax Rules, 2017 in which Rules by notification dated23.01.2018 Rule 31A has been inserted dealing with value ofsupply in case of lottery, betting, gambling and horse racing. Fordetermining the value of the lottery, now, there is statutoryprovision contained in Section 15 read with Rule 31A. Section 15of the Act, 2017 by sub-section (2) it is provided what shall beincluded in the value of supply. What can be included in the valueis enumerated in sub-clause (a) to (e) of sub-section (2) of Section15. Further, sub-section (3) of Section 15 provides that what shallnot be included in the value of the supply. When there are specificstatutory provisions enumerating what should be included in thevalue of the supply and what shall not be included in the value ofthe supply, the submission of the petitioner that prize money isto be abated for determining the value of taxable supply cannotbe accepted. What is the value of taxable supply is subject to thestatutory provision which clearly regulates, which provision hasto be given its full effect and something which is not required tobe excluded in the value of taxable supply cannot be added byjudicial interpretation. Further, Rule 31A, sub-rule (2) as amendedclearly provides that value of supply shall be deemed to be100/128 of the face value of ticket or of the prize as notified inthe Official Gazette by the Organising State, whichever is higher.[Paras 74, 78, 79][194-D-E; 196-A-D; 196-D-E]

4.2 The value of taxable supply is a matter of statutoryregulation and when the value is to be transaction value which isto be determined as per Section 15, it is not permissible tocompute the value of taxable supply by excluding prize which hasbeen contemplated in the statutory scheme. When prize paid bythe distributor/agent is not contemplated to be excluded fromthe value of taxable supply, the submission of the petitioner thatprize money should be excluded for computing the taxable valueof supply is not accepted. Thus, while determining the taxablevalue of supply the prize money is not to be excluded for thepurpose of levy of GST. When the levy of GST, determination of AB

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Ataxable value are governed by the Parliamentary Act in thiscountry, legislative scheme of other countries may not be relevantfor determining the issue which has been raised. The taxing policyand the taxing statute of various countries are different whichare in accordance with taxing regime suitable and applicable indifferent countries. The issue which has been raised has to beBanswered by looking into the statutory provisions of the Act, 2017and the Rules framed therein which govern the field. Thus, thepetitioner is not entitled to reliefs as claimed in the writ petition.[Paras 80, 81, 82][196-F-H; 197-A; 197-B-D; 197-D-E]

The State of Madras v. Gannon Dunkerley &CCo.(Madras) Ltd., [1959] SCR 379; Builders’Association of India v. Union of India, (1989) 2 SCC645 : [1989] 2 SCR 320; H. Anraj and Ors. v.Government of Tamil Nadu and Ors. (1986) 1 SCC424 : [1985] 3 Suppl. SCR 342; Sunrise Associates v.DGovt. of NCT of Delhi and others, 2010 (10) SCC 420:Vikas Sales Corporation and another v. Commissionerof Commercial Taxes and another, (1996) 4 SCC 433[1996] 2 Suppl. SCR 204; Municipal Corporation ofDelhi v. Gurnam Kau, 1989 (1) SCC 101 : [1988] 2Suppl. SCR 929; Navinchandra Mafatlal Bombay v.ECommissioner of Income Tax, Bombay City, AIR 1955SC 58:[1955] SCR 829; Sri Krishna Das v. Town AreaCommittee, Chirgaon, (1990) 3 SCC 645; State of UttarPradesh and Ors. v. Deepak Fertilizers & PetrochemicalCorporation Ltd., (2007) 10 SCC 342 : [2007] 6 SCRF525; Union of India and Ors. v. Martin Lottery AgenciesLimited, (2009) 12 SCC 209 : [2009] 7 SCR 946;Ayurveda Pharmacy and Anr. v. State of Tamil Nadu,(1989) 2 SCC 285: [1989] 2 SCR 37 – referred to

CIVIL ORIGINAL JURISDICTION: Writ Retition (Civil) No.961 OF 2018

Vikramjit Banerjee, ASG, Ravindra Shrivastava, C.A. Sundaram,Sr. Advs., Arjun Garg, Aakash Nandolia, Ms. Garima Tiwari, Arpit Jain,Ms. Nisha Bagchi, Ms. Shirin Khajuria, Bhuvan Mishra, B. KrishnaPrasad, Karan Bharihoke, Rahul Chitnis, Sachin Patil, Geo Joseph, Ms.Madhumita Bhattacharjee, Ms. Rohini Musa, Abhishek Gupta, ZaffarInayat, Advs. for the appearing parties.

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The Judgment of the Court was delivered by ASHOK BHUSHAN, J.

The petitioner, an authorized agent, for sale and distribution oflotteries organized by State of Punjab has filed this writ petition impugning H

Athe definition of goods under Section 2(52) of Central Goods and ServicesTax Act, 2017 and consequential notifications to the extent it levies taxon lotteries. The petitioner seeks declaration that the levy of tax on lotteryis discriminatory and violative of Articles 14, 19(1)(g), 301 and 304 ofthe Constitution of India.

B2. We need to notice certain background facts which has givenrise to this writ petition.

2.1 The Parliament enacted the Lotteries (Regulation) Act, 1998to regulate the lotteries and to provide for matters connected therewithand incidental thereto. Section 2(b) of the Act defines lottery whichCprovides that “lottery” means a scheme, in whatever form and bywhatever name called, for distribution of prizes by lot or chance to thosepersons participating in the chances of a prize by purchasing tickets.Section 4 provides that a State Government may organise, conduct orpromote the lottery subject to conditions enumerate therein. DifferentStates have been organizing and conducting lotteries in accordance withDthe aforesaid Act. It is to be noted that prior to parliamentary enactmentfor regulating the lotteries, different States have enacted legislationregulating the lotteries which were the legislations even prior to theenforcement of the Constitution, levying tax on the sale of lottery tickets.Reference is made to Bengal Finance Sales Tax Act, 1941 and MadrasEGeneral Sales Tax Act, 1939. Another Statute to be noticed is BombayLotteries (Control and Tax) and Prize Competitions (Tax) Act, 1958.

2.2 There has been a series of litigation regarding taxability oflottery tickets and this Court had occasion to deliver several judgmentson the subject which we shall notice hereinafter. Service tax was leviedFon lottery tickets by Finance Act, 1994. A Circular dated 14/21.2.2017was also issued providing for mode of determination of the amount ofservice tax. Rules were also framed namely Lotteries (Regulation) Rules,2010 by the Central Government containing a set of rules for regulationof the lotteries organized by the States.

G2.3 By Constitution (One Hundred and First Amendment) Act,2016, Article 246A was inserted in the Constitution containing specialprovisions with respect to Goods and Services Tax. Article 269A andArticle 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, 2017H

(Act No.12 of 2017) to make provisions for levy and collection of tax onintra-State supply of goods or services or both by the Central Governmentand for matters connected therewith or incidental thereto. The Act cameinto force w.e.f. 12.04.2017. The Parliament also enacted the IntegratedGoods and Services Tax Act, 2017 (Act No.13 of 2017), the UnionTerritory Goods and Services Tax Act, 2017 (Act No.14 of 2017) andthe Goods and Services Tax (compensation to States) Act, 2017 (ActNo.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 securitiesbut includes actionable claim……………. Chapter III of the Act providesfor levy and collection of tax. Section 15 deals with value of taxablesupply. After the enactment of Act No.12 of 2017, Notification wasissued by Government of India dated 28.06.2017 in exercise of powerconferred by sub-section (1) of Section 9 notifying the rate of theintegrated tax. By the notification dated 28.06.2017 with regard to lotteryrun by the State Government, value of supply of lottery was deemed tobe 100/112 of the face value of the ticket or the prize as notified in theofficial gazette of the organising State, whichever is higher. With regardto lotteries authorised by the State Government value of supply of lotterywas deemed to be 100/128.

2.5 The writ petitioner, an authorised agent for the state of Punjabfor sale and distribution of lotteries organised by State of Punjab aggrievedby the provisions of Act No.12 of 2017 as well as notifications issuedtherein filed the present writ petition praying for following reliefs:- “a)By appropriate writ, order or direction, quash and set asidethe definition of ‘Goods’ under Section 2(52) of the CentralGoods and Services Tax Act, 2017 [Annexure P-18 (Pg.141to 143)], Impugned Notifications 01/2017 Central Tax(Rate), 01/2017 [Annexure P-19 (Pg.144 to 148)], IntegratedTax (Rate), 01/201 [Annexure P-20 (Pg. 149 to 154)], andthe State rate Notifications of the Respondent State ofPunjab [Annexure P-21(Pg.155 to 157)] to the extent itlevies tax on Lottery by declaring the same to bediscriminatory and violative of Article 49, (19)(1)(g), 301,304 of the Constitution of India and of the CGST, SGSTand IGST Act.

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Ab)In the Alternative, by appropriate writ, order or directionquash and set aside the impugned Notifications 01/2017Central Tax (Rate), 01/2017 Integrated Tax (Rate) 01/2017and the State rate Notification of the Respondent State ofPunjab to the extent it levies tax on the face value of thelottery ticket without abating the prize money ComponentBof the lottery ticket when the said amount never forms partof the income of the Petitioner or the lottery trade.

c)In the Alternative, by appropriate writ, order or directionquash and set aside the Impugned Notifications 01/2017Central Tax (Rate), 01/2017 Integrated Tax (Rate) 01/2017Cand the State rate Notification of the Respondent State ofPunjab to the extent it levies two different rates on tax onthe face value of the lottery ticket and declare that theRespondents can levy an uniform rate of 12% Tax on Lotteryirrespective of place where it is being sold, and afterDadjusting the prize money component from the face valueof lottery tickets.”

3. We have heard Shri Ravindra Shrivastava, learned senior counselfor the petitioner and Shri Vikramjit Banerjee, learned Additional SolicitorGeneral for the Union of India. We have also heard Shri C.A. Sundaram,Elearned senior counsel for the intervenor.

4. Shri Shrivastava submits that lottery is not a goods and underthe Central Goods and Services Tax Act, 2017, GST is levied only ongoods, hence levy of GST on lottery is ultra vires to the Constitution. Itis further submitted that the Constitution Article 366 sub-article (12)Fdefine goods to include all materials, commodities and articles.Thedefinition in the Constitution exclude actionable claims since it only refersto materials, commodities and articles. The definition of goods given inSection 2(52) of Central Goods and Services Tax Act, 2017 (hereinafterreferred to as “Act, 2017”) is unconstitutional. It is further submittedthat Constitution Bench of this Court in Sunrise Associates vs. Govt.Gof NCT of Delhi and Ors., (2006) 5 SCC 603 has categorically heldthat lottery is not a good. When Constitution Bench has held that lotteryis not a good, the provisions of Act, 2017 treating the lottery as goods iscontrary to the judgement of Constitution Bench in Sunrise Associates(supra). The lottery is not an actionable claim as is now sought to beHincluded in the definition of goods given in Section 2(52). The provisions of Act, 2017 are self-contradictory in as much as the definition ofactionable claim is as per definition of Transfer of Property Act, whichis only the claim and not the goods. Further, under the definition of goods,actionable claims have been included as goods underSection 2(52). It is further submitted that GST is being levied on theface value of the lottery tickets which is impermissible since the facevalue of the tickets also includes prize money to be reimbursed to thewinners of the lottery tickets. Learned senior Counsel submits thatmeaning of goods as occurring in the Constitution of India has to betaken in its legal sense. The definition of goods as occurring in Sale ofGoods Act, 1930 clearly excludes actionable claims from the definitionof goods, which definition has been held to be definition of goods underthe Constitution by this Court in State of Madras vs. GannonDunkerley & Co., (Madras) Ltd., (1959) SCR 329. The attempt ofincluding the actionable claim within the meaning of goods seems to bedeliberate attempt to make the lottery fall within the scope of GST whichwould render the definition of goods contrary to the meaning ascribed toit by the Constitution of India as held by Gannon Dunkerley (supra).The words defined in the Constitution of India will have to be ascribedtheir legal meaning and not the popular meaning.

5. Shri Shrivastava further submits that the Parliament does notenjoy an absolute power to make an inclusive definition of something tobe taxed which is not taxable otherwise. There is no absolute powerwith the legislature to define something. If such definition has no rationale,such artificial definition cannot be treated only for the purpose of assumingtaxation power. Shri Shrivastava further submits that taxing actionableclaim only is discriminatory since all actionable claims are not beingtaxed. Shri Shrivastava submits that according to Schedule III to theAct, 2017 under Item No.6 actionable claims other than lottery, bettingand gambling have been treated neither as supply of goods nor supply ofservices. There is a clear hostile discrimination in taxing only lottery,betting and gambling whereas all other actionable claims have been leftout of the taxing net. Shri Shrivastava has further submitted that theobservations made in the judgment of Constitution Bench in SunriseAssociates (supra) that lotteries are actionable claims are only obiterdicta and cannot be treated to be ratio of the judgment.

6. Shri Vikramjit Banerjee, learned Additional Solicitor Generalrefuting the submissions of learned senior counsel for the petitioner at AB

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Athe very outset submits that the writ petition filed by the writ petitionerunder Article 32 is not maintainable. It is submitted that lottery is “resextra commercium” and no right under Article 19(1)(g) andArticle 301 can be claimed by the petitioner with regard to lottery. Thetransaction of lottery tickets cannot be raised to the status of trade,commerce or intercourse. There is no right with the petitioner whichBcan 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 activityneed to be viewed with greater latitude than laws touching civil rights.He further submits that courts are loath to interfere with taxing policiesCof the States. The fact of not levying tax on other actionable claimsapart from lottery, betting and gambling cannot be said to bediscriminatory. It is submitted that Constitution Bench of this court inSunrise Associates (supra) has held that an actionable claim is amovable property and goods in the wider sense. The definition of goodsgiven in Section 2(52) of Act 2017 is in accord with the ConstitutionDBench judgment of this court in Sunrise Associates (supra) and theargument that definition of goods given in Section 2(52) is contrary toabove Constitution Bench judgment in Sunrise Associates (supra) ismisplaced. The definition of goods given under Article 366(12) of theConstitution is an inclusive definition. Article 366 (12A) defines goodsEand services tax to mean tax on supply of goods or services or bothexcept taxes on the supply of alcoholic liquor for human consumption.Lottery having been judicially held to be an actionable claim is coveredwithin the meaning of term goods under section 2(52). The UnionParliament has the competence to levy GST on lotteries under article246A of the Constitution. Under Article 279A the GST Council hasFapproved the levy of GST on lottery tickets, hence, the inclusion ofactionable claims in the definition of goods under section 2(52) is inkeeping with the legislative and taxing policy. It is well settled that courtswould not review the wisdom or advisability or expediency of a tax.The levy on face value is authorised by section 15(1) read with sectionG15(5) of the Act, 2017 and Rule 31(A) of the Central Goods and ServicesTax Rules, 2017. The levy of 28% tax on face value is neitherdiscriminatory nor beyond the taxing policy/powers of the State.

7. Shri Banerjee further submits that during pendency of the writpetition, Rule 31A has been amended vide notification dated 02.03.2020Hmerging earlier two separate rates, i.e., regarding value of supply of lottery run by the State Government, which was earlier 100/112 andvalue of supply of lottery authorised by the State Government, whichwas 100/128 has been made uniform and by virtue of Rule 31Asub-rule(2), value of supply of lottery is one and the same, i.e., 100/128of 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 amendmentdated 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 nolonger available to the petitioner. Shri Banerjee further submits thatjudgment of this Court in State of Madras Vs. Gannon Dunkerley(supra) relied by learned senior counsel for the petitioner is not attractedin the facts of the present case. It is submitted that the above decisiondealt with the definition of term “sale” and was not concerned with theinterpretation of “goods”.

8. Shri Sundaram appearing for the intervenor submits that theConstitution permits tax on goods and actionable claims being not taxedunder the Constitution, the Parliament cannot have the power of taxinglottery. The taxing power of legislature is traceable to the Constitutionalone. It is not open to the legislature to enlarge its taxing power. Theword “goods” is not a new word and is a concept well known in theConstitution. Legislature cannot tax something which is constitutionallynot goods. The Act, 2017 cannot include something that was not part ofthe definition as provided for in the Constitution. The definition of goodsunder the GST Act would necessarily have to be guided by the definitionof goods given under the Constitution. Shri Sundaram further submitsthat in any event, the prize money in a lottery deducted from a lotteryclaim ought not to be taxed at all and the tax, if at all ought to be leviedonly on the invoice value, i.e., the transaction value of the lottery ticketor the lottery scheme after deducting the prize money. The lottery tickethas a zero value and is only a chance, which cannot be taxed. ShriSundaram submits that lottery ticket is not even an actionable claim butonly a chance, which is treated as an actionable claim by ratio ofConstitution Bench judgment in Sunrise Associates (supra), whichwill not be a good within the meaning of Article 366 (12) of theConstitution. 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 adefinition something as good, which Constitution itself excludes. Exclusionof all actionable claims from levy of GST except three, i.e., lottery, bettingand gambling is nothing but hostile discrimination. Shri Sundaram submits AB

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Athat when the lottery is being permitted by the States, it is a commercialactivity. When the State itself organise a lottery, it is not pernicious. Noreason is forthcoming as to why only three actionable claims are taxedleaving all others out of tax net.

9. Shri Ravindra Shrivastava in his rejoinder submits that he is notBclaiming any violation of right under Article 19(1)(g) or Article 301. Hesubmits that writ petition is fully maintainable under Article 32 of theConstitution. A Parliamentary enactment on ground of violation of Article14 is sought to be challenged in the writ petition, which writ petition isfully maintainable. Shri Shrivastava questions the legislative competenceof Parliament to tax lottery as goods. Shri Shrivastava submits that heChas placed reliance on the principle, which has been laid down by thisCourt in Gannon Dunkerley (supra). This court in Gannon Dunkerley(supra) laid down that definition of goods has to be taken as it is meantunder the Sale of Goods Act, 1930, which definition is also to be takenfor the purposes of Article 366(12) of the Constitution. Goods has to beDinterpreted in its legal sense. Goods cannot be defined in an artificialmanner as has been done by the Parliament in Section 2(52). ShriShrivastava submits that inclusive definition cannot be expansive andunrealistic. He submits that there is no similarity in goods and actionableclaims. There cannot be artificial expansion of definition of goods. Hesubmits that lottery acquires property only when prize is declared. AEticket 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 hostilediscrimination with regard to only three categories of actionable claims,i.e., lottery, betting and gambling whereas all other actionable claims areFnot being taxed under Act, 2017. He submits that taxing only three itemshas no nexus with the object sought to be achieved. No rationale hasbeen provided by the respondent. If actionable claim is a homogeneousclause, why only three have been picked out. Lottery is not somethingpernicious. Relying on earlier circular dated 14.02.2017, Shri ShrivastavaGsubmits that prize money has to be excluded from face value. ShriShrivastava further submits that lottery is held all across the world andin other countries, GST is levied by excluding the prize money. ShriShrivastava has lastly submitted that notification, which has been issuedduring pendency of the writ petition now providing a uniform rate oflotteries organised by the States or authorised by the State having notH

been challenged in this writ petition, hence, petitioner reserve its right tochallenge the notification dated 21.02.2020/02.03.2020 separately inappropriate proceedings.

11. We have considered the submissions of the learned counselfor the parties and have perused the records.

12. From the submissions of the learned counsel for the partiesand materials on the record, following are the questions which arise forconsideration in this writ petition:-

(I)Whether the writ petition is not maintainable under Article32 of the Constitution of India since the writ petition relatesto lottery, which is res extra commercium and the petitionercannot claim protection under Article 19(1)(g)?

(II)Whether the inclusion of actionable claim in the definitionof goods as given in Section 2(52) of Central Goods andServices Tax Act, 2017 is contrary to the legal meaning ofgoods and unconstitutional?

(III)Whether the Constitution Bench judgment of this Court inSunrise Associates (supra) in paragraphs 33, 40, 43 and48 of the judgment has laid down as the proposition of lawthat lottery is an actionable claim or the observations madein the judgment were only an obiter dicta and not declarationof law?

(IV) Whether exclusion of lottery, betting and gambling fromItem No.6 Schedule III of Central Goods and Services TaxAct, 2017 is hostile discrimination and violative of Article14 of the Constitution of India?

(V)Whether while determining the face value of the lotterytickets for levy of GST, prize money is to be excluded forpurposes 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 thelotteries organised by the State of Punjab cannot complain violation ofArticle 19(1)(g) of the Constitution and lottery being a res extracommercium, the writ petition cannot be entertained. He submits that A

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Aright to practice any profession or to carry on any occupation, trade orbusiness does not extend to practicing a profession or carrying on anoccupation, trade or business which is inherently vicious and pernicious.Shri Ravindra Shrivastava, learned senior counsel appearing for thepetitioner submits that he is not claiming any violation of right underArticle 19(1)(g) in the writ petition. In view of this submission of theBlearned senior counsel for the petitioner, we need not consider the writpetition with reference to violation of Article 19(1)(g).

14. Article 32 confers a right to move to Supreme Court forenforcement of the right conferred by the Part III, which is guaranteedby sub-article (1) of Article 32 of the Constitution. Article 32 is anCimportant and integral part of the basic structure of the Constitution.Article 32 is meant to ensure observance of rule of law. Article 32 providesfor the enforcement of the fundamental rights, which is most potentweapon. In the Constituent Assembly Debates, Dr. B.R. Ambedkarspeaking about this Article made following statement:-D“If I was asked to name any particular Article in the Constitutionas most important…………………… an Article without whichthe Constitution would be nullity – I could not refer, to any otherArticle except this one. It is the very soul of the constitution andthe very heart of it.”E15. By this petition, the petitioner has challenged the provisions ofCentral Goods and Services Tax Act, 2017 insofar as it imposes tax onthe lottery. The grounds of challenge include violation of Article 14 ofthe Constitution of India. The levy of GST has been attacked asdiscriminatory. It is also submitted that there is a hostile discrimination inFtaxing only lottery, betting and gambling whereas leaving all otheractionable claims from the taxing net as is evident by entry 6 of ScheduleIII of Act, 2017.

16. The writ petition alleging the violation of Article 14 speciallywith respect to a parliamentary Act can very well be entertained underGArticle 32. We may also notice that with regard to the matter of lotteryitself, 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 petitionquestioning the ban imposed on the sale of lottery tickets within theH

State of Maharashtra. Even judgment of this Court in H. Anraj vs.Government of Tamil Nadu, (1986) 1 SCC 414 was also a writpetition, which was heard alongwith a civil appeal questioning theleviability of the sales tax by the State Legislature on the sale of lotterytickets.

17. We are, thus, of the considered opinion that on the grounds,which have been raised in the writ petition, the writ petition cannot besaid to be not maintainable under Article 32 and the preliminary objectionmade by the learned ASG that the writ petition cannot be entertainedunder Article 32 and is overruled.

Question Nos. II and III

18. Both the above questions being inter-related are taken together.The question to be considered is as to what is the legal meaning of goodsand whether actionable claim can also be a part of goods. We need tofirst notice as to what is the concept of goods.

19. The Sale of Goods Act, 1930 defines goods in Section 2(7) infollowing words:

Section 2. Definitions. In this Act, unless there is anythingrepugnant in the subject or context,—

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(7) ”goods” means every kind of movable property other thanactionable claims and money; and includes stock and shares,growing crops, grass, and things attached to or forming part ofthe land which are agreed to be severed before sale or under thecontract of sale;”

20. Section 311(2) of the Government of India Act, 1935 whichhas been referred by this Court as Constitution Act defines the goods asincluding all materials, commodities and articles. Entry 48 in List II ofSeventh Schedule of the Government of India Act, 1935 was “Taxes onthe Sale of Goods”. Prior to the enforcement of the Constitution of Indiagoods were defined in different provincial legislations. Article 366 of theConstitution of India contains heading ‘definition’. Article 366 sub-clause(12) defines goods. Article 366 sub-clause (12) is as follows:

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A“In this Constitution, unless the context otherwise requires, thefollowing expression has, the meaning hereby respectivelyassigned to them, that is to say

(12) goods includes all materials, commodities, and articles;”

21. Another expression which we may need to notice is “actionableBclaim”. Section 3 of the Transfer of Property Act, 1882 which isinterpretation clause defines the actionable claim in following words:

“actionable claim” means a claim to any debt, other than a debtsecured by mortgage of immovable property or by hypothecationor pledge of movable property, or to any beneficial interest inCmovable property not in the possession, either actual orconstructive, of the claimant, which the Civil Courts recognise asaffording grounds for relief, whether such debt or beneficialinterest be existent, accruing, conditional or contingent;”

22. Now, we may notice the definition of goods in the CentralDGoods of Services Tax Act, 2017 which definition is under challenge inthe present writ petition. Section 2 sub-section (52) defines goods in thefollowing words:

“Section 2(52)- ”goods” means every kind of movable propertyother than money and securities but includes actionable claim,Egrowing crops, grass and things attached to or forming part of theland which are agreed to be severed before supply or under acontract of supply;”

23. Section 2(1) defines actionable claim in following words:

“Section 2(1) “actionable claim” shall have the same meaning asFassigned 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 propertyother than actionable claims and money; whereas definition of goods inSection 2(52) in the Act, 2017 while defining goods as every kind ofGmovable property other than money and securities “but includes actionableclaim”. We have noted above the various grounds of attack on theinclusion of actionable claim in the definition of goods underSection 2(52) as raised by the learned counsel for the petitioner. Thefirst ground of attack of the learned counsel for the petitioner is that H

expression goods is well known concept and is also defined in theConstitution of India. The definition of goods as meant and understoodin the Constitution of India has to be adopted and not departed by theLegislature.

25. Shri Srivastava in his usual persuasive style submits that goodsas defined in the Sale of Goods Act, 1930 is the concept which has beenheld to be applicable with respect to goods as understood in theConstitution of India also. The Act, 2017 could not have taken anycontrary definition and the contrary definition taken in Section 2(52) ofAct, 2017 is unconstitutional and liable to be struck down. Sheet anchorof the arguments of Shri Srivastava is the Constitution Bench Judgmentin The State of Madras vs. Gannon Dunkerley & Co.(Madras)Ltd., 1959 SCR 379. In the above case this Court had occasion to considerEntry 48 in List II in Schedule VII of the Government of India Act, 1935that is “Taxes on the sale of goods”. The Madras General Sales TaxAct, 1939 was amended by the Madras General Sales Tax (Amendment)Act, 1947 introducing several new provisions. Section 2(c) of the Acthad defined “goods” as meaning “all kinds of movable property otherthan actionable claims, stocks and shares and securities and as includingall materials, commodities and articles”. The provision was amendedand 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” inSection 2(h) was also enlarged so as to include “a transfer of property ingoods involved in the execution of a works contract”. The assessingauthorities included in the turnover of respondent the value of the materialsused in construction works which was contested by the respondent onthe ground that power of the Madras Legislature to impose a tax onsales under Entry 48 in List II in Schedule VII of the Government ofIndia Act, does not extend to imposing a tax on the value of materialsused in works, as there is no transaction of sale in respect of thosegoods, and the provisions introduced by the Madras General SalesTax(Amendment) Act, 1947, authorising the imposition of such tax areultra vires. The High Court deciding the question in favour of therespondent held that expression sale of goods had the same meaning inEntry 48 which had in Sale of Goods Act, 1930. The State of Madrasfiled an appeal in this Court. The question which fell for consideration inthe above case has been noticed in the judgment in the following words:

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A“The sole question of determination in this appeal is whether theprovisions 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 inexecution of works contract treating it as a sale of goods by thecontractor, and the answer to it must depend on the meaning to begiven to the words “sale of goods” in Entry 48 in List II of ScheduleBVII to the Government of India Act, 1935....”

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26. This Court laid down that the expression “sale of goods” inEntry 48 has to be interpreted in its legal sense. Following observationwas 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 itmust be interpreted in its legal sense. What its connotation in thatsense is, must now be ascertained....”

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“...We think that the true legislative intent is that the expression“sale of goods” in Entry 48 should bear the precise and definitemeaning it has in law, and that that meaning should not be left tofluctuate with the definition of “sale” in laws relating to sale ofgoods which might be in force for the time being....”

E28. Interpreting the expression of “sale of goods” at page 413 thisCourt held:

“...If the words “sale of goods” have to be interpreted in theirlegal sense, that sense can only be what it has in the interpretationthat words of legal import occurring in a statute should be construedFin their legal sense is that those words have, in law, acquired adefinite and precise sense, and that, accordingly, the legislaturemust be taken to have intended that they should be understood inthat sense. In interpreting an expression used in a legal sense,therefore, we have only to ascertain the precise connotation whichit possesses in law. ...”

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29. Summing up its conclusion this Court at page 425 held:

“To sum up, the expression “sale of goods” in Entry 48 is anomen juris,its essential ingredients being an agreement to sellmovables for a price and property passing therein pursuant to that H

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 ofgoods, and it is not within the competence of the ProvincialLegislature under Entry 48 to impose tax on the supply of thematerials used in such a contract treating it as a sale.”

30. We may also notice the following pertinent observation madeby this Court in the above case at page 426:

“....It is also a fact that acting on the view that Entry 48 authorisesit, the States have enacted laws imposing a tax on the supply ofmaterials in works contracts, and have been realising it, and theirvalidity has been affirmed by several High Courts. All these lawswere in the statute book when the Constitution came into force,and it is to be regretted that there is nothing in it which offers asolution to the present question. We have, no doubt, Art. 248 andEntry 97 in List I conferring residual power of legislation onParliament, but clearly it could not have been intended that thecenter should have the power to tax with respect to worksconstructed in the States. In view of the fact that the StateLegislatures had given to the expression “sale of goods” in Entry48 a wider meaning than what it has in the Indian Sale of GoodsAct, that States with sovereign powers have in recent times beenenacting laws imposing tax on the use of materials in theconstruction of buildings, and that such a power should moreproperly be lodged with the States rather than the center, theConstitution might have given an inclusive definition of “sale” inEntry 54 so as to cover the extended sense. But our duty is tointerpret the law as we find it, and having anxiously consideredthe question, we are of opinion that there is no sale as such ofmaterials used in a building contract, and that the ProvincialLegislatures had no competence to impose a tax thereon underEntry 48. “

31. The ratio of the above judgment which is heavily relied byShri 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 Courtrelied on the definition of “sale of goods” as occurring in Sale of GoodsAct, 1930 for interpreting Entry 48 in List II Schedule VII of theGovernment of India Act, 1935. We may notice that in the above judgment A

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Athis Court had occasion to deal with the definition of term “sale” andexplaining the legal meaning as existed at the time of enactment ofGovernment of India Act, 1935, the above law was laid down.

32. We may further notice that by the Constitution (Forty-sixthAmendment) Act, 1982 sub-Article (29A) has been inserted in theBArticle 366 of the Constitution. Defining tax on sale or purchase of goodswhich is inclusive definition. the above Constitution Amendment wasmade with the intent to tax on the sale or purchase of goods on thetransfer, 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 andCwork contracts were also taxed. We may also notice subsequentConstitution Bench judgment in the case of M/s Gannon Dunkerleyand 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 earlierDjudgment 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 questionwhether as a result of the Forty Sixth Amendment an independenttaxing power has been conferred on the States had arisen forEconsideration before this Court in Builders’ Association case(supra) since it was specifically raised in the contentions urged onbehalf of the States. While summarising the said contentions thisCourt has thus mentioned this contention Sub-clause (b) of Clause29-A of Article 366 of the Constitution has conferred on theLegislatures of States the power to levy tax on works contractFwhich is independent of the power conferred on the Legislaturesof the States under Entry 54 of the State List, (p.346). The saidcontention was rejected with these observations.

The object of the new definition introduced in Clause (29-A) ofArticle 366 of the Constitution is, therefore, to enlarge the scopeGof tax on sale or purchase of goods wherever it occurs in theConstitution so that it may include within its scope the transfer,delivery or supply of goods that may take place under any of thetransactions referred to in Sub-Clauses (a) to (f) thereof whereversuch transfer, delivery of supply becomes subject to levy. of salesHtax. So construed the expression tax on the sale or purchase of goods in Entry 54 of the State List, therefore, includes a tax onthe transfer of property in goods (whether as goods or in someother form) involved in the execution of a works contract also.The tax leviable by virtue of Sub-clause (b) of Clause (29-A) ofArticle 366 of the Constitution thus becomes subject to the samediscipline to which any levy under Entry 54 of the State List ismade subject to under the Constitution.

30. Having regard to the observations referred to above and thestand of the parties during the course of arguments before us, wedo not consider it appropriate to reopen the issues which ; arecovered by the decision in Builders’ Association case (supra) andwe will, therefore, deal with the matter in accordance with thelaw as laid down in that case that the expression tax on the sale orpurchase of goods in Entry 54 of the State List includes a tax onthe transfer of property in goods (whether as goods or in someother form) involved in the execution of a works contract alsoand the tax leviable by virtue of Sub-clause (b) of clause (29-A)of Article . 366 of the Constitution is subject to the discipline towhich any levy under Entry 54 of the State List is made subject tounder the Constitution. “

33. Definition of goods as occurring in Section 311(12) ofGovernment of India Act, 1935 although was noticed by this Court in Gannon Dunkerley and Co., (supra) but definition of goods was notfurther elaborated. Definition of goods as occurring in Article 366(12) isinclusive definition and does not specifically excludes actionable claimfrom its definition. Whenever inclusive definition is given of an expressionit always intended to enlarge the meaning of words or phrases, used inthe definition. In this context, it is relevant to refer to the judgment ofthis Court in Reserve Bank of India vs. Peerless General Financeand Investment co.Ltd. And others,1987(1) SCC 424 with regardto the inclusive definition. Following was observed in paragraphs 32-33:

“32....All that is necessary for us to say is this: Legislatures resortto inclusive definitions (1) to enlarge the meaning of words orphrases so as to take in the ordinary, popular and natural sense ofthe words and also the sense which the statute wishes to attributeto it, (2) to include meanings about which there might be somedispute, or, (3) to bring under one nomenclature all transactions ABC

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33. Interpretation must depend on the text and the context. Theyare the bases of interpretation. One may well say if the text is thetexture, context is what gives the colour. Neither can be ignored.BBoth are important. That interpretation is best which makes thetextual interpretation match the contextual. A statute is bestinterpreted when we know why it was enacted. ...”

34. The Constitution framers were well aware of the definition ofgoods as occurring in the Sale of Goods Act, 1930 when the ConstitutionCwas enforced. By providing an inclusive definition of goods inArticle 366(12), the Constitution framers never intended to give anyrestrictive meaning of goods.

35. In The State of Madras v. Gannon Dunkerley & Co.,(supra) this Court was concerned with the Provincial Legislatures underDEntry 48 in List II in Schedule VII of the Government of India Act,1935. We have extracted the observations made by this Court at page426. This Court at page 426 of the judgment held that none of the ProvincialLegislatures could have exercised the power conferred to make lawwith respect to sale of goods in the Lists, to impose a tax on constructioncontracts. This Court further observed that before such a law could beEenacted it would have been necessary to have had recourse to the residualpowers of the Governor-General under under Section 104 of the Act.This Court has further observed that it has no doubt, Article 248 andEntry 97 of List I conferring residual powers of legislation on Parliament,but clearly it could not have been intended that Centre should have powerFto tax with respect to works constructed in the States.

36. The Act, 2017 is an Act of Parliament in exercise of power ofParliament as conferred under Article 246A of the Constitution. Article246A is extracted for ready reference:

“Article 246A. Special provision with respect to goods andGservices tax. (1) Notwithstanding anything contained in articles246 and 254, Parliament, and, subject to clause (2), the Legislatureof every State, have power to make laws with respect to goodsand services tax imposed by the Union or by such State.

(2) Parliament has exclusive power to make laws with respect toHgoods and services tax where the supply of goods, or of services, or both takes place in the course of inter-State trade or commerce.Explanation.—The provisions of this article, shall, in respect ofgoods and services tax referred to in clause (5) of Article 279A,take effect from the date recommended by the Goods and ServicesTax Council.”

37. When the Parliament has been conferred power to make lawwith respect to goods and services, the legislative power of the Parliamentis plenary. The observations of this Court in The State of Madras v.Gannon Dunkerley & Co.,(supra) at page 426 are clear pointer thatalthough the State Legislature had no legislative competence to enactimpugned legislation but Parliament on the strength of residual powercould have legislated. We are the view that the judgment of this Court inThe State of Madras v. Gannon Dunkerley & Co.,(supra) does notlend support to the submission of the learned counsel for the petitionerthat Parliament could not have defined the goods in Act, 2017, expandingthe definition of goods as existing in Sale of Goods Act, 1930.

38. Now, we come to the Constitution Bench judgment of thisCourt in Sunrise Associates vs. Govt. of NCT of Delhi and others,(2006) 5 SCC 603, on which judgment learned counsel for both theparties have placed reliance. The above Constitution Bench wasconstituted to reconsider the earlier judgment of this Court in H. Anrajand Ors. Vs. Government of Tamil Nadu and Ors. , (1986) 1 SCC424. Paragraphs 4 and 5 of the referring order (Sunrise Associatesvs. Govt. of NCT of Delhi and others, 2010 (10) SCC 420) reads:

“4. We are inclined to agree that the judgment in H. Anraj requiresreconsideration for the reason that, prima facie, the only right ofthe purchaser of a lottery ticket is to take the chance of winningthe prize. There seems to us to be no good reason to split thetransaction 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 winthe prize, dependent on chance.

5. In the case of Vikas Sales Corpn. v. Commr. Of CommercialTaxes (1996 (4) SCC 433), a Bench of three learned Judgesagreed with the decision in H. Anraj. It is, therefore, necessarythat these appeals should be heard by a Constitution Bench.”

39. Before we further look into the judgment of this Court inSunrise Associates, we need to notice very briefly judgment of this A

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ACourt in H. Anraj. In the above case the question arose out of the levyof tax on sales of lottery tickets under Tamil Nadu General Sales Act1959. A writ petition was filed questioning the levy of tax imposed onsale of lottery tickets before this Court. The contention which was urgedbefore this Court for challenging levy has been noticed in paragraph 5 ofthe judgment in the following words:B

“5. ....Counsel pointed out that under the charging provisioncontained in both the Acts (s. 3 of the Tamil Nadu Act 1959 andSection 4 of the Bengal Act 1941) the taxable event is the sale ofgoods (here lottery tickets) and the levy is imposed upon the taxableturnover of every dealer in regard to the sales of lottery ticketsCand therefore, quite clearly, each of the State Legislatures haspurported to Act in the exercise of its own taxing power underEntry 54 of List II. But according to counsel Entry 54 of List IIenables legislation imposing a tax, inter alia, on “sale of goods”that it is well-settled that the expression “sale of goods” has to beDconstrued in the sense which it has in the Indian Sale of GoodsAct, 1930(vide Ganon Dunkerley’s case) MANU/SC/0152/1958: [1959]1SCR379 “goods under Section 2(7) thereof compriseswithin its scope every kind of movable property but specificallyexcludes actionable claim, that the essence of lottery is a chancefor a prize, that a sale of such a chance is not a sale of goods andEtherefore the levy of sales tax on sale of lottery tickets would bebeyond the ambit of Entry 54 of List II. Alternatively, counselcontended that a lottery ticket is an actionable claim as defined inSection 3 of Transfer of Property Act or a chose-in-action knownto English law, the ticket itself being merely a slip of paper orFmemorandum evidencing the right of the holder thereof to claimor receive a prize if successful in the draw and therefore theimpugned levy is outside Entry 54 of List II. …”

40. This Court in the above judgment noted the definitions of goodsas occurring in Sale of Goods Act, 1930, sale of goods in Tamil NaduGGeneral Sales Act, 1959, and definition of goods in Article 366 (12).After considering, this Court in H Anraj came to the conclusion thatlottery to the extent that they comprise the entitlement to participate inthe draw are “goods” properly so called, and they are not actionableclaims. In paragraph 33 of the judgment following was laid down:

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“33. In the light of the aforesaid discussion my conclusions arethat lottery tickets to the extent that they comprise the entitlementto participate in the draw are “goods” properly so called, squarelyfalling within the definition of that expression as given in theTamil Nadu Act, 1959 and the Bengal Act, 1941, that to that extentthey are not actionable claims and that in every sale thereof atransfer of property in the goods is involved. In view of theseconclusions the impugned Amendments made in the two concernedActs for levying tax on sale of lottery tickets will have to be upheldas falling within the legislative competence of the concerned Statelegislature under Entry 54 of List II in the Seventh Schedule andtherefore, we think it unnecessary to go into the validity of thealternative submission made by the learned Attorney General thatlegislative competence for enacting the impugned Amendmentswould also be there under Entry 62 of List II in the SeventhSchedule of the Constitution.”

41. As noted above the judgment of H Anraj came to bequestioned. A Bench of three Judges in Vikas Sales Corporation andanother vs. Commissioner of Commercial Taxes and another,(1996) 4 SCC 433, agreed with the decision of H Anaraj necessitatingreference before the Constitution Bench in Sunrise Associates, theConstitution Bench noticed the question which arose before theConstitution Bench. In paragraph 29 it noticed that “only question weare called upon to answer is whatever the decision in H Anaraj thatlottery tickets are “goods” for the purposes of Article 366(29A)(a) ofthe Constitution and the State sales tax laws, was correct”. TheConstitution Bench in paragraph 33 observed that to the extent that thelottery ticket evidenced the right to claim the prize, it was not goods butan 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 haveindicated against ‘B’, was the ratio. The lottery ticket was held tobe merely evidence of the right to participate in the draw andtherefore goods the transfer of which was a sale. To the extentthat the lottery ticket evidenced the right to claim the prize, it wasnot goods but an actionable claim and therefore not ‘goods’ underthe Sales Tax Laws. A transfer of it was consequently not a sale.

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42. The pertinent observation has been made by the ConstitutionBench in paragraph 36 wherein it noticed that in States sales tax lawsBactionable claims have been uniformly excluded from the definition ofgoods. This Court held “were actionable claims, etc. not otherwiseincludible in the definition of “goods” there was no need for excludingthem”. Following has been laid down in paragraph 36:

“36. We have noted earlier that all the statutory definitions of theCword ‘goods’ in the State Sales Tax Laws have uniformly excluded,inter alia, actionable claims from the definition for the purposes ofthe Act. Were actionable claims etc., not otherwise includible inthe definition of ‘goods’ there was no need for excluding them. Inother words, actionable claims are ‘goods’ but not for the purposesof the Sales Tax Acts and but for this statutory exclusion, anDactionable claim would be ‘goods’ or the subject matter ofownership. Consequently an actionable claim is movable propertyand ‘goods’ in the wider sense of the term but a sale of an actionableclaim would not be subject to the sales tax laws.”

43. In paragraph 40 the Constitution Bench reiterated that a saleEof 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 insurancemoney or a partner’s right to sue for an account of a dissolvedpartnership or the right to claim the benefit of a contract not coupledFwith any liability (see Union of India v. Sarada Mills Ltd. SCC atp.880, (1972) 2 SCC 877 ). A claim for arrears of rent has alsobeen held to be an actionable claim (State of Bihar v.Maharajadhiraja Sir Kameshwar Singh, SCR at p.910 (1952) SCR889). A right to the credit in a provident fund account has also’Gbeen held to an actionable claim (Official Trustee, Bengal v. L.Chippendale, AIR 1944 Cal 335; Bhupati Mohan Das v. PhanindraChandra Chakravarty and Anr., AIR 1935 Cal 756. In our opiniona sale of a lottery ticket also amounts to the transfer of anactionable claim.”

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44. Further in paragraphs 46 and 48 this Court held lottery to bean actionable claim. Paragraphs 46 and 48 are to the following effect:

“46. There is no value in the mere right to participate in the drawand the purchaser does not pay for the right to participate. Theconsideration is paid for the chance to win. There is therefore nodistinction between the two rights. The right to participate beingan inseparable part of the chance to win is therefore part of anactionable claim.

48. Even if the right to participate is assumed to be a separateright, there is no sale of goods within the meaning of sales taxstatutes when that right is transferred. When H. Anraj said thatthe right to participate was a beneficial interest in movable property,it did not define what that movable property was. The draw couldnot and was not suggested to be the movable property. The onlyobject of the right to participate would be to win the prize. Thetransfer of the right would thus be of a beneficial interest in movableproperty not in possession. By this reasoning also a right toparticipate in a lottery is an actionable claim. “

45. This Court concluded in paragraph 51 that in H Anraj it wasincorrectly 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. Anrajincorrectly held that a sale of a lottery ticket involved a sale ofgoods. There was no sale of goods within the meaning of SalesTax Acts of the different States but at the highest a transfer of anactionable claim. The decision to the extent that it held otherwiseis accordingly overruled though prospectively with effect fromthe date of this judgment. “

46. One of the submissions which has been pressed by ShriSrivastava is that the observations made by the Constitution Bench inthe above paragraphs that lottery is an actionable claim is based on anobiter dicta since the question was not up for consideration. He submitsthat Court was to consider as to whether lottery tickets are goods or notwithin 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 bythe Constitution Bench in paragraph 9 states that ‘goods’ means all kindsof movable property (other than newspaper, actionable claims, stocks, AB

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Ashares and securities). The exclusion of the actionable claims from thegoods as enumerated in the definition is also a part of the definition. If aparticular item is covered by exclusion it is obvious that it does not fall inthe definition of the goods. When the Constitution Bench came to theconclusion that the lottery is an actionable claim it was considering thedefinition of 2(j) itself and what has been held by the Constitution BenchBcannot be held to be obiter dicta.

47. Explaining obiter dicta this Court in Municipal Corporationof Delhi vs. Gurnam Kau, 1989(1) SCC 101, made followingobservation in paragraphs 10 and 11:

C“10....The only thing in a judge’s decision binding as an authorityupon a subsequent judge is the principle upon which the case wasdecided. Statements which are not part of the ratio decidendi aredistinguished as obiter dicta and and are not authoritative. ....

11. Pronouncements of law, which are not part of the ratiodecidendi are classed as obiter dicta and are not authoritative.D....”

48. It cannot be said that the question as to whether lottery is agoods or actionable claim had not arisen in the decision in SunriseAssociates. When an item was covered by excluded category, the saidEconclusion could have been arisen only after consideration of the definitionand the exclusionary clause. We, thus, are not in agreement with thesubmission of the learned counsel for the petitioner that the observationsof the Constitution Bench holding lottery as actionable claim is only obiterdicta and not binding. The Constitution Bench in Sunrise Associateshas categorically held that lottery is actionable claim after dueFconsideration 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 ConstitutionBench pronouncement in Sunrise Associates and no exception can betaken to the definition of the goods as occurring in Section 2(52).

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G49. We are of the view that definition of goods under Section2(52) of the Act,2017 does not violate any constitutional provision nor itis in conflict with the definition of goods given under Article 366(12).Article 366 clause(12) as observed contains an inclusive definition andthe definition given in Section 2(52) of Act, 2017 is not in conflict withdefinition given in Article 366(12). As noted above the Parliament by theH

Constitution (One Hundred and First Amendment) Act, 2016 insertedArticle 246A., a special provision with respect to goods and servicestax. The Parliament was fully empowered to make laws with respect togoods and services tax. Article 246A begins with non obstante clausethat is “Notwithstanding anything contained in Articles 246 and 254”,Which confers very wide power to make laws. The power to makelaws as conferred by Article 246A fully empowers the Parliament tomake laws with respect to goods and services tax and expansive definitionof goods given in Section 2(52) cannot be said to be not in accord withthe constitutional provisions.

50. Shri Shrivastava with his usual ability and skill submits thatParliament does not enjoy an absolute power to make an inclusivedefinition of something to be taxed, which is not taxable otherwise. Thepower of legislature to lay definition has limitations and cannot includesomething which cannot in rational sense be included. While goods andactionable claims are both different concepts, lottery has no resemblancewith either. The legislature can only provide an extended meaning byinclusive definition only for preventing tax evasion. To support hissubmission, he has relied on judgment of this Court in Bhopal SugarIndustries Ltd., M.P. And Anr. vs. D.P. Dube, Sales Tax Officerand Anr., (1964) 1 SCR 481. The facts of the case have been noticedby the Constitution Bench of this Court in following words:

“By this petition under Article 32 of the Constitution it is claimedthat the definition of “retail sale” in Section 2(1) of the Act whichseeks to render consumption by the owner of motor-spirit liable totax under the Act by virtue of Section 3 is beyond the competenceof the State Legislature and hence void and the order of the firstrespondent seeking to impose liability upon the Company forpayment of tax infringes the fundamental rights of the Companyunder Article 19(1)(f) and (g) of the Constitution.”

51. This Court held that consumption by an owner of goods inwhich he deals is not a sale within the meaning of sale of goods. It washeld that extended definition, which includes consumption by a retaildealer of motor spirit or lubricants is beyond the competence of theState legislature. Following was laid down by this Court:- “Consumption by an owner of goods in which he deals is thereforenot a sale within the meaning of the Sale of Goods Act and AB

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Atherefore it is not “sale of goods” within the meaning of Entry 54List II Schedule VII of the Constitution. The legislative power forlevying tax on sale of goods being restricted to enacting legislationfor levying tax on transactions which conform to the definition ofsale of goods within the meaning of the Sale of Goods Act, 1930,the extended definition which includes consumption by a retailBdealer himself of motor spirit or lubricants sold to him for retailsale” is beyond the competence of the State legislature. But theclause in the definition in, Section (1) “and includes the consumptionby a retail dealer himself or on his behalf of motor spirit or lubricantto him for retail sale which is ultra vires the State LegislatureCbecause of lack of competence under Entry 54 in List II ScheduleVII of the Constitution is saverable, from the rest of the definition,and that clause alone must be declared invalid.”

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52. In the above case, the Constitution Bench was consideringthe concept of “sale” and the extended definition of sale by whichDconsumption by owner himself was treated to be sale was held ultra vires to the legislative competence of the State. The present is a casewhere we are not dealing with concept of sale and further in the casebefore us, it is the Parliament, which has enacted the Act, 2017 whichhas competence to make a law imposing tax on goods and services.

E53. We may notice another Constitution Bench Judgment of thisCourt in Navinchandra Mafatlal Bombay vs. Commissioner ofIncome 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 oftax on capital gains was ultra vires to the central legislature. TheFConstitution 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 rigidlycrystallized by reason of the judicial interpretation of that wordappearing in the Income Tax Act then logically no enlargement ofGthe scope of the Income Tax Act, by amendment or otherwise,will be permissible in future. A conclusion so extravagant andastounding can scarcely be contemplated or countenanced.

XXXXXXXXXX”

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54. This Court further laid down that a word appearing in aConstitution Act, must not be construed in any narrow and pedanticsense. Following was laid down in paragraph 6:- “6. It should be remembered that the question before us relates tothe correct interpretation of a word appearing in a ConstitutionAct which, as has been said, must not be construed in any narrowand pedantic sense………………………”

55. Another judgment of Constitution Bench of this Court to benoticed is Navnitlal C. Javeri vs. K.K. Sen, Appellate, AssistantCommissioner of Income Tax, (1965) 1 SCR 909. In the abovecase, question arose regarding constitutionality of Section 12(1B) readwith Section 2(6A)(e) of Income Tax Act, 1922. It was contended beforethis court that a loan advanced to a shareholder by the company cannot,in any legitimate sense, be treated as his income; and so, the artificialmanner in which such dividend is ordered to be treated as income by theimpugned provision is not justified. It is true that this Court has laid downthat Parliament cannot choose to tax as income an item which in norational sense can be regarded as a citizen’s income. Following wasobserved:- “This doctrine does not, however, mean that Parliament can chooseto tax as income an item which in no rational sense can be regardedas a citizen’s income. The item taxed should rationally be capableof being considered as the income of a citizen. But in consideringthe question as to whether a particular item in the hands of acitizen can be regarded as his income or not, it would beinappropriate to apply the tests traditionally prescribed by theIncome Tax Act as such.”

56. This Court held that legislature has not travelled beyond thelegislative field while enacting the impugned provision. Following wasobserved:- “………………………There must no doubt be some rationalconnection between the item taxed and the concept of incomeliberally construed. If the legislature realises that the privatecontrolled companies generally adopt the device of makingadvances or giving loans to their shareholders with the object ofevading 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 A

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Aostensibly and nominally advanced to a shareholder as a loan istreated in reality for tax purposes as the payment of dividend tohim. We have already explained how a small number ofshareholders controlling a private company adopt this device.Having regard to the fact that the legislature was aware of suchdevices, would it not be competent to the legislature to devise aBfiction 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 assignedto it by Entry 82 in List I.”

57. In view of what has been laid down by the Constitution Bench,Cas above, there has to be a rational connection between the item taxedbut 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 theobservations of this Court in Sri Krishna Das vs. Town AreaCommittee, Chirgaon, (1990) 3 SCC 645 wherein paragraph 31,Dfollowing was observed:- “31. The contention that the tax is discriminatory in view of theexemptions granted to some of the products and to those thatenter the TAC by rail or motor transport is equally untenable. It isfor the legislature or the taxing authority to determine the questionEof 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 notwithstandinganything contained in Articles 246 and 254, Parliament has power tomake laws with respect to goods and services tax. Article 246A is aFspecial provision with regard to goods and services tax w.e.f. 16.09.2016,which special power has to be liberally construed empowering theParliament to make laws with respect to goods and services tax. Thesubmission of learned counsel for the petitioner is that actionable claimhas been artificially and with a view to assume the power to tax hasbeen included in Section 2(52). The Constitution Bench of this Court inGSunrise Associates (supra) has held that actionable claims areincludible in the definition of goods and had actionable claims were notincludible there was no need for excluding them. The Constitution Benchheld “were actionable claims, etc., not otherwise includible in the definitionof “goods”, there was no need for excluding them. In other words,Hactionable 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 ConstitutionBench, the submission of the petitioner that actionable claims have beenartificially included in the definition of goods cannot be accepted. TheConstitution Bench has clearly laid down that actionable claims are goods.We, thus, do not agree with the submission of Shri Shrivastava thatParliament has exceeded its jurisdiction in including actionable claims inthe definition of “goods” under Section 2(52).

60. We, thus, answer Question Nos.II and III in the followingmanner:

Answer No. II

61. The inclusion of actionable claim in definition “goods” as givenin Section 2(52) of Central Goods and Services Tax Act, 2017 is notcontrary to the legal meaning of goods and is neither illegal norunconstitutional.

Answer No. III

62. The Constitution Bench judgment of this Court in SunriseAssociates has laid down that lottery is an actionable claim as propositionof law. The observation cannot be said to be obiter dicta.

Question No. IV

63. As noted above, another limb of attack mounted by ShriShrivastava is on the ground of hostile discrimination while taxing lottery,betting and gambling and excluding other actionable claims. Referenceis made to Item No.6 of Schedule III of Act, 2017. Schedule III beginswith heading “activities or transactions which shall be treated neither assupply of goods nor supply of services. Item No.6 of Schedule III is asfollows:- “Item No.6 – Actionable claims other than lottery, betting andgambling.”

64. Submission is that assuming the lotteries to be actionable claims,the Act, 2017 suffers from a hostile discrimination in first includingactionable claims within the category of goods and then excluding allactionable claims from supply of goods and creating a further exception A

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Aof lottery, betting and gambling in Schedule III. Further submission isthat there is no intelligible differentia for excluding lotteries, betting andgambling from the other actionable claims, nor does such exclusion haveany nexus with the purpose of the Act. In support of the above preposition,Shri Shrivastava has relied on judgment of this Court in AyurvedaPharmacy and Anr. vs. State of Tamil Nadu, (1989) 2 SCC 285.BThis Court in the above case laid down that when the commodities belongto same class or category, there must be rational basis for discriminationbetween one commodity and other for purpose of imposing the tax. Inparagraph 6 of the judgment, following has been laid down:-

6. ……………It is open to the legislature, or the StateCGovernment if it is authorised in that behalf by the legislature, toselect different rates of tax for different commodities. But wherethe commodities belong to the same class or category, there mustbe a rational basis for discriminating between one commodity andanother for the purpose of imposing tax. It is commonly knownDthat considerations of economic policy constitute a basis for levyingdifferent rates of sales tax. For instance, the object may be toencourage a certain trade or industry in the context of the Statepolicy for economic growth, and a lower rate would be consideredjustified in the case of such a commodity. There may be severalsuch considerations bearing directly on the choice of the rate ofEsales tax, and so long as there is good reason for making thedistinction from other commodities no complaint can be made.What the actual rate should be is not a matter for the courts todetermine generally, but where a distinction is made betweencommodities falling in the same category a question arises at onceFbefore a court whether there is justification for thediscrimination………………………”

65. Another judgment laying down the same preposition as reliedby learned counsel for the petitioner is State of Uttar Pradesh andOrs. vs. Deepak Fertilizers & Petrochemical Corporation Ltd.,G(2007) 10 SCC 342.

66. There can be no dispute to the above preposition laid down bythis Court. The question to be answered is as to whether there is anyrational reason for taking out only three actionable claims, i.e., lottery,betting and gambling while leaving other actionable claims from tax net.

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67. Whether there is any rational basis for taking out only thesethree actionable claims is a question to be answered, whether thelegislature has created a hostile discrimination by taxing only these threewhereas leaving other actionable claims out of the tax net.

68. Even before enforcement of the Constitution of India, therewere several legislations by different States regulating lottery, bettingand gambling. Before a Constitution bench of this court in State ofBombay vs. R.M.D. Chamarbaugwala and Anr., AIR 1957 SC 699, this Court had occasion to consider the nature of activities akin tolottery, betting and gambling. Bombay Lotteries and prize CompetitionControl and Tax Act, 1948 was enacted to regulate the tax, lotteries andprize competition. The petitioner, who was conducting and running theprize competition from State of Mysore where entries were receivedfrom various parts of India including the State of Bombay had challengedthe Act, 1948 and the Rules namely Bombay Lotteries and PrizeCompetitions Control and Tax Rules, 1952. The writ petition was allowedby the High Court, against which State of Bombay had filed an appeal.The Constitution Bench held the activity of respondent as activity ofgambling nature. This Court laid down following in paragraphs 41 and46:- “41. It will be abundantly clear from the foregoing observationsthat the activities which have been condemned in this countryfrom ancient times appear to have been equally discouraged andlooked upon with disfavour in England, Scotland, the United Statesof America and in Australia in the cases referred to above. Wefind it difficult to accept the contention that those activities whichencourage a spirit of reckless propensity for making easy gain bylot or chance, which lead to the loss of the hard earned money ofthe undiscerning and improvident common man and thereby lowerhis standard of living and drive him into a chronic state ofindebtedness and eventually disrupt the peace and happiness ofhis humble home could possibly have been intended by ourConstitution makers to be raised to the status of trade, commerceor intercourse and to be made the subject-matter of a fundamentalright guaranteed by Article 19(1)(g). We find it difficult to persuadeourselves that gambling was ever intended to form any part ofthis ancient country’s trade, commerce or intercourse to bedeclared as free under Article 301. It is not our purpose nor is it A

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Anecessary for us in deciding this case to attempt an exhaustivedefinition of the word “trade”, “business”, or “intercourse”. Weare, however, clearly of opinion that whatever else may or maynot be regarded as falling within the meaning of these words,gambling cannot certainly be taken as one of them. We areconvinced and satisfied that the real purpose of Articles 19(1)(g)Band 301 could not possibly have been to guarantee or declare thefreedom of gambling. Gambling activities from their very natureand in essence are extra-commercium although the external forms,formalities and instruments of trade may be employed and theyare not protected either by Article 19(1)(g) or Article 301 of ourCConstitution.

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46. For the reasons stated above, we have come to the conclusionthat the impugned law is a law with respect to betting and gamblingunder Entry 34 and the impugned taxing section is a law withrespect to tax on betting and gambling under Entry 62 and that itwas within the legislative competence of the State Legislature tohave enacted it. There is sufficient territorial nexus to entitle theState Legislature to collect the tax from the petitioners who carryon the prize competitions through the medium of a newspaperprinted and published outside the State of Bombay. The prizecompetitions being of a gambling nature, they cannot be regarded D

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as trade or commerce and as such the petitioners cannot claimany fundamental right under Article 19(1)(g) in respect of suchcompetitions, nor are they entitled to the protection of Article 301.The result, therefore, is that this appeal must be allowed and theorders of the lower courts set aside and the petitions dismissedFand we do so with costs throughout. The state will get only oneset of costs of hearing of this and Appeals Nos. 135, 136, & 187of 1956 throughout.”

69. In a later decision, Union of India and Ors. vs. MartinLottery Agencies Limited, (2009) 12 SCC 209, this Court hadGoccasion to consider levy of service tax on the lottery tickets. ThisCourt had held that law as it stands today recognises lottery to begambling, which is res extra commercium. In paragraph 17, followinghas been laid down:- “17. We fail to persuade ourselves to agree with theaforementioned submission. The law, as it stands today (although H

it is possible that this Court in future may take a different view),recognises lottery to be gambling. Gambling is res extracommercium as has been held by this Court in State ofBombay 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 andhave been in practice in this country since before independence andwere regulated and taxed by different legislations. When Act, 2017defines the goods to include actionable claims and included only threecategories of actionable claims, i.e., lottery, betting and gambling forpurposes of levy of GST, it cannot be said that there was no rationale forincluding these three actionable claims for tax purposes. Regulationincluding 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 imposingGST and not taxed other actionable claims, it cannot be said that there isno 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 thepeople by securing and protecting, as effectively as it may, a social orderin which justice, social, economic and political, shall inform all theinstitutions of the national life. The Constitution Bench in State ofBombay vs. R.M.D. Chamarbaugwala and Anr. (supra) has clearlystated that Constitution makers who set up an ideal welfare State havenever intended to elevate betting and gambling on the level of country’strade or business or commerce. In this country, the aforesaid were neveraccorded recognition of trade, business or commerce and were alwaysregulated and taxing the lottery, gambling and betting was with theobjective as noted by the Constitution Bench in the case of State ofBombay vs. R.M.D. Chamarbaugwala and Anr. (supra), we, thus,do not accept the submission of the petitioner that there is any hostilediscrimination in taxing the lottery, betting and gambling and not taxingother actionable claims. The rationale to tax the aforesaid is easilycomprehensible as noted above. Hence, we do not find any violation ofArticle 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 abatedfrom the face value of the lottery ticket for levy of GST. The prices are A

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Apaid to the winner of the lottery ticket by the distributer/agent. It hasbeen submitted that in the earlier regime of service tax also for thepurposes of computing service tax the value of service tax was takeninto account as the total face value of the ticket sold minus the total costof the ticket and the prize money paid by the distributor. Further, servicetax was levied at a miniscule rate of 0.82% and 1.2% as compared toBthe exorbitant rate of 28% which is being charged now. The question tobe answered is that while determining the face value of the ticket forlevy of tax the price money of the ticket is to be excluded. The reliancehas also been placed on the circular dated 14.02.2007 which providedthat the value of taxable service shall be taken into account at the totalCface value of the ticket sold minus (a) the total cost of the ticket paid bythe distributor to the State Government and (b) price money paid by thedistributer. Further, reliance has been placed on the Constitution Benchjudgment of this Court in M/s. Gannon Dunkerley and co. and othersvs. State of Rajasthan and others, 1993(1) SCC 364, where theConstitution Bench laid down that the value of the goods involved inDexecution of a works contract on which tax is leviable must exclude thecharges which appertain to the contract for supply of labour and services.The reliance is placed on paragraph 47 of the judgment which is to thefollowing effect:

“45. Keeping in view the legal fiction introduced by the FortyESixth Amendment whereby the works contract which are entireand indivisible into one for sale of goods and other for supply oflabour and services, the value of the goods involved in the executionof a works contract on which tax is leviable must exclude thecharges which appertain to the contract for supply of labour andFservices. This would mean that labour charges for execution ofworks item no (i) amounts paid to a sub-contractor for labour andservices [item No. (ii), charges for planning, designing andarchitect’s fees [item No. (iii), charges for obtaining on hire orotherwise machinery and tools used in the execution of a workscontact [item No. (iv), and the cost of consumables such as water,Gelectricity, fuel etc. which are consumed in the process ofexecution of a works contract item No. (v) and other similarexpenses for labour and services will have to be excluded ascharges for supply of labour and services. ...”

73. We may first notice the statutory scheme under the Act, 2017and 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:

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Section 15.(1) The value of a supply of goods or services or bothshall be the transaction value, which is the price actually paid orpayable for the said supply of goods or services or both where thesupplier and the recipient of the supply are not related and theprice is the sole consideration for the supply.

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(2) The value of supply shall include–––

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(a) any taxes, duties, cesses, fees and charges leviedunder any law for the time being in force other thanthis Act, the State Goods and Services Tax Act, theUnion Territory Goods and Services Tax Act and theGoods and Services Tax (Compensation to States)Act, if charged separately by the supplier; D

(b) any amount that the supplier is liable to pay in relationto such supply but which has been incurred by therecipient of the supply and not included in the priceactually paid or payable for the goods or services orboth; E

(c) incidental expenses, including commission andpacking, charged by the supplier to the recipient of asupply and any amount charged for anything doneby the supplier in respect of the supply of goods orservices or both at the time of, or before delivery ofgoods or supply of services; F

(d) interest or late fee or penalty for delayed payment ofany consideration for any supply; and (e)subsidies directly linked to the price excludingsubsidies provided by the Central Government andGState Governments.

Explanation.––For the purposes of this sub-section,the amount of subsidy shall be included in the valueof supply of the supplier who receives the subsidy.

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(3) The value of the supply shall not include any discount which isgiven––

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(a) before or at the time of the supply if such discounthas been duly recorded in the invoice issued in respectof such supply; and B

(b) after the supply has been effected, if—(i) suchdiscount is established in terms of an agreemententered into at or before the time of such supply andspecifically linked to relevant invoices; and

(ii) input tax credit as is attributable to the discount on the basis ofCdocument issued by the supplier has been reversed by the recipient ofthe supply.

(4) Where the value of the supply of goods or services or bothcannot be determined under sub-section (1), the same shall be determinedin such manner as may be prescribed.”D

74. The Rules have been framed, namely, the Central Goods andServices Tax Rules, 2017 in which Rules by notification dated 23.01.2018Rule 31A has been inserted dealing with value of supply in case of lottery,betting, gambling and horse racing. Article 31A as was inserted providesas follows:

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“Section 31A. Value of supply in case of lottery, betting,gambling and horse racing. -

(1) Notwithstanding anything contained in the provisions of thisChapter, the value in respect of supplies specified below shall bedetermined in the manner provided hereinafter.

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(2) (a) The value of supply of lottery run by State Governmentsshall be deemed to be 100/112 of the face value of ticket or of theprice as notified in the Official Gazette by the organising State,whichever is higher.

(b) The value of supply of lottery authorised by State Governmentsshall be deemed to be 100/128 of the face value of ticket or of theprice as notified in the Official Gazette by the organising State,whichever is higher.

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Explanation:– For the purposes of this sub-rule, the expressions- H

(a) —lottery run by State Governments means a lottery notAallowed to be sold in any State other than the organizingState; (b)—lottery authorised by State Governments means a lotterywhich is authorised to be sold in State(s) other than theorganising State also; and B

(c) —Organising State has the same meaning as assigned to itin clause (f) of sub-rule (1) of rule 2 of the Lotteries(Regulation) Rules, 2010.

(3) The value of supply of actionable claim in the form of chanceto win in betting, gambling or horse racing in a race club shall be100% of the face value of the bet or the amount paid into thetotalisator.”

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75. Rule 31A has now been amended vide notification dated02.03.2020 by which following sub-rule (2) has been substituted:

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“Sub-Rule (2). The value of supply of lottery shall be deemed tobe 100/128 of the face value of ticket or of the price as notified inthe Official Gazette by the Organising State, whichever is higher.”

76. We may first deal with submission of the petitioner based oncircular dated 14.02.2007. Circular dated 14.02.2007 was issued whenthe service tax was levied on distributor of paper lottery. The circularprovided for determination of value of taxable service by deducting totalcost of ticket paid by the distributor and price money paid by thedistributor, that was regime when it was treated as business auxilliaryservice rendered by distributor. The said circular has no relevance orapplication after the 2017 enactment.

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77. We may also refer to Constitution Bench judgment of GannonDankerley and Co. (second) where this Court laid down that value ofthe goods involved in the execution of the works contract on which taxis leviable must exclude the charges which appertain to the contract forsupply of labour and services. As noted above in paragraph 47 this Courtnoted items which were to be excluded while determining the value ofgoods involved in the works contract. What was held by this Court in theabove case relates to works contract which judgment has no applicationon the issue which has arisen before us that is abatement of price moneywhile determining the value of the lottery.

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A78. For determining the value of the lottery, now, there is statutoryprovision 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 shallbe included in the value of supply. What can be included in the value isenumerated 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 beBincluded in the value of the supply. When there are specific statutoryprovisions enumerating what should be included in the value of the supplyand what shall not be included in the value of the supply we cannotaccept the submission of the petitioner that prize money is to be abatedfor determining the value of taxable supply. What is the value of taxableCsupply is subject to the statutory provision which clearly regulates, whichprovision has to be given its full effect and something which is not requiredto be excluded in the value of taxable supply cannot be added by judicialinterpretation.

79. Further, Rule 31A as noted above, sub-rule (2) as amendedDclearly provides that value of supply shall be deemed to be 100/128 ofthe face value of ticket or of the prize as notified in the Official Gazetteby the Organising State, whichever is higher. Learned Additional SolicitorGeneral has explained the working of Rule 31A of Rules by giving anexample:

E“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 willbe 21.875. Therefore, Rs.100 includes GST of 21.875 on thetaxable value of Rs.78.125. This is a mechanism to split the facevalue 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 reverseFcalculation.”80. The value of taxable supply is a matter of statutory regulationand when the value is to be transaction value which is to be determinedas per Section 15 it is not permissible to compute the value of taxablesupply by excluding prize which has been contemplated in the statutoryGscheme. When prize paid by the distributor/agent is not contemplated tobe excluded from the value of taxable supply, we are not persuaded toaccept the submission of the petitioner that prize money should be excludedfor computing the taxable value of supply the prize money should beexcluded. We, thus, conclude that while determining the taxable value of H

supply the prize money is not to be excluded for the purpose of levy ofGST.

81. Learned counsel for the petitioner has also relied on varioustaxing statutes of other countries, wherein the petitioner submits thatprize 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 ofSingapore; Goods and Services Act, 1985 of New Zealand and Sri Lanka-Value Added Tax Act, 2002. When the levy of GST, determination oftaxable value are governed by the Parliamentary Act in this country, weare of the view that legislative scheme of other countries may not berelevant for determining the issue which has been raised before us. Thetaxing policy and the taxing statute of various countries are differentwhich are in accordance with taxing regime suitable and applicable indifferent countries. The issue which has been raised before us has to beanswered by looking into the statutory provisions of the Act, 2017 andthe Rules framed therein which govern the field.

82. In the foregoing discussion we are of the view that the petitioneris not entitled to reliefs as claimed in the writ petition.

83. We may, however, notice that petitioner has prayed for grantof liberty of challenging the notifications dated 21.02.2020/02.03.2020by which rate of GST for lottery run by the State and lottery organizedby the State have been made the same, which notification has not beenchallenged in the writ petition since the notifications were issued duringthe pendency of writ petition. Petitioner has prayed that the said issuebe left open, the notification having not been challenged in the writ petitionliberty be given to the petitioner to challenge the same in appropriateproceedings. We accept the above prayer of the petitioner. The petitionershall 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, thewrit petition is dismissed.

Devika Gujral

Writ petition dismissed.

A

B

C

D

E

F

G

H