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Issue: Are lottery tickets ‘goods’?
Held : No
Constitution bench was considering a reference that the
Supreme Court’s decision in H. Anraj vs. Govt. of Tamil Nadu required
reconsideration. The question was whether sales tax can be levied by States on
the sale of lottery tickets? It was held in H. Anraj case that a lottery
involved (i) the right to participate in the lottery draw and (ii) the right
to win the prize, depending on chance. The judges were of the opinion that in
case of first right, it was a case of transfer of beneficial interest in
movable goods and was sale within the meaning of Article 366(29-A)(d) of the
Constitution and consequently subject to tax. Whereas in second right, was a
chose in action and therefore not ‘goods’ for the purpose of levy of sale tax.
The reference was made on the prima facie view that there was no good
reason to split a lottery into two separate right and therefore the judgment
in case of H. Anraj required reconsideration.
After examining various decisions including Supreme Court
decision in case of Vikas Sales Corporation (102 STC 106) it was
observed that the lottery ticket is merely evidence of the right to
participate in the draw and therefore goods, the transfer of which was sale.
To be extend that the lottery ticket evidenced the right to claim the prize,
it was not goods but an actionable claim and therefore not ‘goods’ under the
Sales Tax Laws. A transfer of it was consequently not a sale. The lottery
ticket per se had no innate value.
The court also observed that a lottery ticket has no value
itself. It is a mere piece of paper. Its value lies in the fact that it
represents a chance or right to a conditional benefit of winning a prize of a
greater value than the consideration paid for the transfer of that chance. It
is nothing more than a token or evidence of this right.
In view of the above observation, it was held that, the
decision in H. Anraj incorrectly held that a sale of lottery ticket involved a
sale of goods. There was no sale of goods within the meaning of the Sales Tax
Acts of the different States but at the highest a transfer of an actionable
claim. The decision to the extent that it held otherwise is accordingly
overruled though prospectively with effect from the date of this judgment.
[Sun Rise Associates vs. Government of NCT of Delhi &
Others (145 STC 576)].
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Issue: What is situs of sale in case of assignment of
certain corporeal rights?
The petitioner company, a dealer under the Gujarat Sales
Tax Act, 1969 are manufacturer and reseller in pharmaceutical preparations and
having manufacturing facility in the State of Gujarat. They have entered into
deed of assignment and sale transferring corporeal rights to use trade mark
and right to copyright, technology etc. with another company in the State of
Maharashtra. The said deed of agreement was executed at Mumbai in the State of
Maharashtra. However assessing authority at Gujarat issued show cause notice
and levied tax on said transaction. It was the contention of the revenue that
irrespective of the transfer being made at Mumbai in the State of Maharashtra,
as the goods in question, the corporeal rights transferred are located in
Gujarat are liable to pay tax in the State of Gujarat as per Gujarat Sales Tax
Act. Against said order petition was filed in Gujarat High Court.
Hon’ble Court referred decisions in case of Tata
Consultancy Services vs. State of Andhra Pradesh 137 STC 620 (SC) and
20th Century Finance Corporation vs. State of Maharashtra 119 STC 182 (SC)
and it was observed that there is no provision in Gujarat Act fixing situs of
sale by legal fiction. Accordingly it was held that the incidence of
taxability arises at a place where the property in goods is actually passed.
And in the instant case as property was passed in the State of Maharashtra the
order passed by revenue, raising demand of tax are quashed and set aside.
[Ambalal Sarabhai Enterprises Ltd. vs. Sales Tax Officer,
Class-I, City Circle & Others 145 STC 523]
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Issue: What is ‘compensatory tax’?
The present case came up before the constitution bench of
Supreme Court to decide with certitude of parameters of the judicially evolved
concept of ‘compensatory tax’ vis-a-vis Article 301. According to the
appellant M/s Jindal Stainless Ltd. the Haryana Local Area Development Tax
Act, 2000, imposes a restriction on trade and is violative of Article 301, of
the Constitution particularly, when the provisions of Article 304(b) have not
been compiled with. The impugned Act came into force to provide levy and
collection of tax on the entry of goods into local areas of State for
consumption or use therein. However, those who pay sales tax to the State are
exempt from payment of entry tax.
While deciding the issue in present appeal court followed
the decision in case of Automobile Transport (Rajasthan) Ltd. vs. State of
Rajasthan AIR 1062 SC 1406 and Atibari Tea Co. Ltd. vs. State of Assam
1961 SC 232. However decisions in case of Bhagatram Rajeev Kumar vs.
CST 96 STC 654 (SC) and State of Bihar vs. Bihar Chamber of Commerce
103 STC 1 (SC) are overruled. The court observed that the basis of special
assessments, betterment charges, fees or regulatory charges is
‘recompense/reimbursement’ of cost or expenses incurred or capable of being
incurred for providing services/facilities based on the principle of
equivalence unlike taxes whose basis is the concept of ‘burden’ based on the
principle of ability to pay. In this way such levy levied by State on
introduction of said Act is compensatory tax which constitute an exception to
Article 301 of the Constitution of India is a judicially evolved concept.
Regulatory charges are equated with compensatory taxes. Court also discussed
the concept of tax, till, subsidies in generic sense and observed that they
are manifestations of the exercise of the taxing power. It further observes
that, the theory of compensatory tax is that it rests upon the principle that
if the Government by some positive action confers upon individual(s), a
particular measurable advantage, it is only fair to the community at large
that the beneficiary shall pay for it. For a tax to be compensatory, there
must be some link between quantum of tax and the facility/services. Every
benefit is measured in terms of cost which has to be reimbursed by
compensatory tax or in the form of compensatory tax. In other words,
compensatory tax is a recompense/reimbursement. On this basis court also
examined whether the law introduced by state is violative of article 301 or
not and also examined whether restrictions imposed by way of taxation are
reasonable and in public interest within the meaning of Article 304(b).
Accordingly court concluded that the doctrine of ‘direct and immediate effect’
of the impugned law on trade and commerce under Article 301 as propounded in
Atiberi Tea Co. Ltd. vs. State of Assam and theory of whether a tax is
compensatory or not as decided in case of Automobile Transport (Rajasthan)
Ltd. vs.
State of Rajasthan will continue to apply.
[Jindal Stainless Ltd. & Another vs. State of Haryana &
Others (145 STC 544)]
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Issue: Whether ‘stand of sewing machine’ is part of sewing
machine?
Held: Yes
In the present case revenue filed reference for following
question of law. ‘Whether the stand of sewing machine is a part and parcel of
sewing machine and whether it would be taxable at the same rate applicable to
sewing machine?’
Court observed that, stand of sewing machine is only meant
for sewing machine and nothing else. In other words it means that it can be
used for running the sewing machine. It was also observed that in order to run
the sewing machine comfortably, one needs the stand. In view of these
observations it was held that ‘sewing machine stand’ is part of sewing
machine.
[Commissioner of Sales Tax, Indore, M.P. vs. Emar
Industries (145 STC 502)]
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Issue: Whether ‘stay wire’ are declared goods?
Held : Yes
In the present case revenue filed reference for the
following question of law. ‘Whether Tribunal was justified in holding that
stay wire is included in goods specified in section 14(iv)(xv) of the CST Act
and therefore subject to tax @4% as declared goods? Stay wire are those wire
where more than one wire are lightly twisted or bent in order to add the
strength of the wire. These wires are not welded together and they can be
unleashed to their
original position of single wire.
Under the circumstances, court observed that stay wire would really be rolled
wire which is nothing but as classified under sec 14(iv) of the CST Act.
Court referred the decision in case of K. A. K. Anwar &
Co. vs. State of Tamil Nadu 108 STC 258 (SC) and State of Tamil Nadu
vs. Pyarelal Malhotra 37 STC 319 (SC).
Accordingly courts concur with the reasoning assigned by
the Tribunal and answer the question referred against the revenue and in
favour of dealer.
[CST of M.P vs. Vora Wires 145 STC 599 – M.P. High Court]
