This Post analyses the decision rendered by Calcutta High Court in Teesta Distributors & Ors. v. Union of India regarding whether lotteries are exempt from Tax under CGST and SGST Act, 2017. This question, previously litigated and settled, finds relevance primarily owing to the impact of passage of Lotteries (Regulation) Act, 1998 as well as introduction of comprehensive Goods and Services Tax in 2017. The Hon’ble High Court affirmed the ruling of Sunrise Associates v. Government of NCT of Delhi holding that lottery is essentially a chance for a prize and that right to participate is an inseparable part of the chance to win leading to the aforementioned right being part of an ‘actionable claim’.

The Hon’ble High Court framed following issues for consideration

1. Is lottery a ‘goods’ or an ‘actionable claim’?
2. Can lottery be taxed under Central Goods and Services Tax Act, 2017 and West Bengal Goods and Services Tax Act, 2017?
3. If so, is differential levy of tax permissible?
4. To what reliefs, if any, are the parties entitled to?

The power of imposing tax is controlled by Article 265 of Indian Constitution which forbids levy or recovery of any tax except by the authority of law. The petition prayed for a declaration that lotteries are exempt from tax in accordance to SL. No. 6 of Schedule III rad with Section 72 of the Central Goods and Services Tax Act, 2017. Schedule III enumerates activities which shall be treated neither as a supply of goods nor a supply of services.  Sl. No. 6 prescribes “Actionable claims other than lottery, betting and gambling” as activities that shall be treated neither as a supply of goods or as supply of service.

The term ‘goods’ is defined in Article 366(12) of the Constitution of India as ‘Goods’ include all materials, commodities and articles”; The aforementioned definition, as evidenced by the word ‘all’, is not limited to tangible materials, commodities and articles. The court noted that even an intangible product such as software would come within the definition of ‘goods’ are appearing in Article 366(12) of the Constitution of India. However, it must be noted that description for the purpose of tax incidence can be at variance with the traditional and conventional conception of the said entity. The Definition of ‘goods’ under Article 366(12) of the Constitution provides power to legislature to classify lottery as ‘goods’ .The definition of goods in CGST act appears to be draw from and is in fact a mutated form of definition of Goods in SOGA, 1930 which was in turn adopted by Sales Tax legislations. Sale of Goods Act, 1930 defines “goods” as meaning every kind of movable property other than actionable claims and money.  However, In terms of tax incidence, Section 2(52) of the CGST Act, 2017 defines “goods” as meaning every kind of movable property other than money and securities but includes actionable claims, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply. The express inclusion in CGST is calculated to nullify the exclusion of actionable claims from the definition prescribed for goods by Sales Tax Laws. The legislative intent behind express inclusion of actionable claim is to extend the ambit of transactions that are subject to tax incidence under GST regime. It was pointed out in the judgment that lottery is included along with activities such as gambling, betting and horse racing in Schedule III so as to create a category of activities where people indulge in not reaping fruits of their labours. Actionable Claim has been defined in Section 3 of the Transfer of Property act, 1882 as a claim to any debt which the civil courts recognize as affording grounds of relief.  In terms of present question, the categorization of lottery as actionable claim would automatically imply its inclusion in the ambit of ‘goods’ while its categorization as good would render the question of further categorization moot. The instructive definition herein is the definition provided by CGST Act and not SOGA since the question pertains to determination in order to compute and provide for tax incidence and collection. The Court while analyzing past pronouncements affirmed Sunrise associates and held that a lottery ticket can be held to be goods if at all because it evidences the transfer of a right. If the purchasee acquires a claim to a conditional interest in the prize money which is not in the purchasers’ possession, the same can be characterized as ‘actionable claim’. The Petitioner contends that goods as per Article 366 (29A) of the constitution can be defined as something which can be transferred for cash, deferred payment or other valuable consideration. The sale of lottery ticket, as per petitioner, does not entail transfer of any ‘goods’ or even beneficial interest in a movable property rather the ticket holder has a contingent interest in the prize money however he does not get to possess any benefit for such payment in return. The sale of lottery is therefore a sale of chance and thereby cannot come within the definition of ‘goods’ under the CGST Act, 2017. Essentially, Article 269A recognizes the Government of India to collect Goods and Services Tax on supplies in the course of inter-state trade or commerce. It allows the apportionment of the tax levied and collected between the Union and the States as may be provided by Parliament by law. It recognizes the authority of the Parliament by law to formulate the principles for determining the place of supply and when a supply of goods or of services or both takes place in the course of inter-state trade or commerce. The said submission causes confusion on two counts; firstly, the submission confuses between the sources of interpretation of ‘good’ under Article 366 of the Indian Constitution. Clause 29A elucidates events which would be covered under ‘tax on the sale or purchase of goods’, however the said section does not offer any indicia of determination as to what can and cannot be categorized as goods. The phrase ‘ tax on the sale or purchase of goods’  defines (by illustration) as to what can be categorized as tax imposed on sale or purchase of goods. The definition, however, provides no indicia as to what  connotation can be attached to the term ‘goods’ or how and in what manner should the said term be interpreted by the Courts.

The Judgment also considers whether dual rate structure proposed by GST be considered discriminatory. The submission canvassed for invalidity on ground of violation of Article 301 and 304 of the Constitution of India. The Petitioner argued that discrimination in the rates of levy between State organized lotteries merely because they are crossing the borders has no rational nexus and is therefore violative of Article 14 of the Indian Constitution. As it is apparent, the claim was rightly rejected by the court. The term ‘Discrimination’ used in Article 304(a) implies an unfair classification based on an unfavorable bias. In Video Electronics (P) Ltd. v. State of Punjab, it was held that every differentiation is not discrimination and that there is distinction between ‘discrimination without reason’ and ‘discrimination with reason’.  It can be safely inferred that dual rate structure of GST cannot be per se held to be violative of Article 301 of Indian Constitution. The lack of functional basis (an indirect argument on rationality) or suitability of Uniform rates (direct argument for suitable alternative) does not influence the conclusion of non-discriminatory nature of dual rate as analysed under Article 304 of Indian Constitution. The Judgment also noted the wide latitude enjoyed by the legislature in classification for the purpose of taxation. The rationale for imposing differential rates was also located by Court in the 17^th meeting of the GST Council. CGST Act and SGST Act have not discriminated between lotteries run by the State Government and the lotteries authorized by the State. The Central and State Governments had issued relevant notifications imposing different rates of taxes for lottery run by the State Government and lottery authorised by the State Government in another State. The rates are not discriminatory and are intended to preserve economic uniformity and the interest of the constituent States. The Court rightly ruled that arbitrariness or unreasonably is not by themselves a ground for invalidation of a taxing provision.