Batch of six appeals on taxability of sale of REP licences and DEPB credits under Delhi, Kerala and Bombay sales tax laws. Held that Sunrise Associates did not overrule Vikas Sales Corporation; REP licence and DEPB have intrinsic value and free transferability making them market commodities, hence 'goods' exigible to sales tax. Appeals dismissed.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
A
[2008] 7 S.C.R. 919
M/S. YASHA OVERSEAS
v.
COMMISSIONER OF SALES TAX & ORS. (Civil Appeal No. 2155/2000)
MAY 6, 2008
B
[B.N. AGRAWAL, G.S. SINGHVI AND AFTAB ALAM, JJ.)
Import-Export:
Replenishment Licence - Sale of - Exigibility to sales c tax - Held: REP Licence is exigible to sales tax - Innate value of REP licence and its free transferability made it into a market commodity - Constitution Bench decision in Sunrise Associates's case does not alter the position in regard to levy of tax on sale of REP licence - On the said issue \hkas Sales · Corporation's case is a good law D
)'
Duty Entitlement Passbook Scheme (Of.PB) - Sale of DEPB - Exigibility to sales tax - Held: DEPB has its own intrinsic value that makes it a market commodity- Thus, DEPB credit is 'goods' within the meaning of sales tax laws - It is same as REP licence - Hence, sale of OEPB is exigible to tax.
E
The batch of six appeals were referred to the threejudge Bench. One of the appeals relates to the sale of Replenishment Licence and the other five relates to the F sale of Duty Entitlement Passbook Scheme.
In H. Anraj v Govt. of Tamil Nadu (1986) 1 SCC 414, with regard to the amenability to sales tax of sale of lottery tickets, the two-judge Bench of this Court held th~t the sale of lottery tickets are not actionable claims and that inG every sale thereof a transfer of property in goods is involved and as such the sale of lottery tickets could be subjected to tax under T.N. General Sales Tax Act and Bengal Finance (Sales Tax) Act. Ten years later, in Vikas 919 H
<
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A Sales Corporation v Commnr Of Commercial Taxes (1996) 4 S CC 433 the three-judge Bench of this Court, affirming the decision in H. Anraj's case, held that the REP Licences/ Exims Scrips are not in the nature of actionable claims and thus, was exigible to sales tax. Thereafter, the BConstitution Bench decision in Sunrise Associates v Govt. of NCT of Delhi (2006) 5 SCC 603 held that lottery tickets were actionable claims and were therefore, excluded from the definition of 'goods under the Sales Tax Act, and hence the sale of lottery tickets was not subject to sale tax.
c The question which arose for consideration in the batch of the ipstant six appeals was whether the threejudge Bench decision of this Court in Vikas Sales Corporation stands impliedly overruled by the Constitution Bench decision in Sunrise Associates and the earlier D decision in H. Anraj v Govt. of Tamil Nadu (1986) 1 SCC 414 holding 0therwise, did not lay down the correc~ law; and that if the answer to this question is in the negative and Vikas case is still good law, would it also apply to sale of Duty Entitlement Passbook Scheme (DEPB).
Appellants contended that the decision in Vikas case while upholding the taxability of REP licences, referred approvingly to Anraj case which was expressly overruled by Sunrise case; that the reasons given in Vikas case for holding that REP licences were goods were also F disapproved by Sunrise case, thus it must be held that the decision in Vikas case too stands impliedly overruled; that DEPB has materially different features and hence, the decision in Vikas case will have no application to the case of DEPB; that what was sought to be taxed was the G transfer of "Credit" in Duty Entitlement Passbook; that 'credit' could never mean 'goods' under the sales tax laws; that being in the nature of debt, DEPB credit plainly fell within the first part of the definition of actionable claim; that even if the credit is seen not as a debt but as movable H property, sale of DEPB was a beneficial interest in the
,. '"'
,.
M/S. YASHA OVERSEAS v. COMMISSIONER OF SALES TAX & ORS.
921
movable property, thus, credit would still fall within the A second part of the definition of actionable claim; and that saleability of DEPB would not make any difference because many other actionable claims were equally saleable.
Dismissing the appeals, the Court
B
HELD: 1.1 The Constitution Bench decision in Sunrise case does not alter the position in regard to levy of tax on sale of REP licence and on that issue the threeJudge Bench decision in Vikas case continues to hold c the field. [Para 43] [953-C]
1.2 DEPB has an intrinsic value that makes it a market commodity. Therefore, DEPB, like REP licence qualifies as 'goods' within the meaning of the Sales Tax laws of Delhi, Kerala and Mumbai and its sale is exigible to tax. D [Para 43] [953-D]
2.1 It cannot be seen how the decision in Sunrise case can be said to alter the position in regard to the sale of REP licenses as held by the earlier decision in Vikas cas~. The Constitution Bench in Sunrise case firmly and · E expressly declined to go into the question whether REP licences (or DEPB which replaced REP licences) were 'goods'. It is indeed true that the Constitution Bench in Sunrise case did not approve the decision in Vikas case· insofar as it gave their free marketability as an additional F reason to hold that REP licences were not actionable claim but 'goods' properly so called. The Constitution Bench held that the assumption that actionable claims were not transferable for value was quite unfounded and the conclusion drawn on that basis was quite wrong. The G Sunrise case gave illustrations of a number of actionable claims which are transferable. [Para 27] [944-F-H; 945-A]
2.2 While examining the three-Judge Bench decision in Vikas case earlier in this judgment it is seen that the H
922 SUPREME COURT REPORTS
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A Court first came to hold that REP licence/exim scrip fell within the definition of goods quite independently. The court found and held that REP licenses had their own value; they were freely bought and sold in the market for their intrinsic value and for that reason alone those were B goods. It was only after coming to the conclusion that the Court proceeded to examine the matter in the light of the observations made in Anraj case relating to lottery tickets and that too because the Karnataka and Madras High Courts had heavily relied upon the Anraj case for holding c that the sale of REP licences was exigible to sales tax. On
,..
a careful reading of the decision in Vikas case it is apparent that it was the intrinsic value of REP licence that brought it within the definition of goods. [Para 28] [945-B-D]
2.3 In regard to the observations made in Sunrise D case, marketability is a feature of distinction between ·goods' proper and actiorable claims. What was said in Vikas case, as understood, was that the innate value of REP licence and its free transferability made it into a market commodity. The illustrations given in the decision in E Sunrise, namely, (i) a right on the fulfillment of certain conditions to call for delivery of goods mentioned in a contract, (ii) negotiable instruments, (iii) right to recover insurance money, (iv) a partner's right to sue for an account of a dissolved partnership, (v/ the right to claim F the benefit of a contract not coupl~d with any liability, (vi)
a claim for arrears of rent and (vii) a right to the credit in a provident fund account are all indeed transferable for consideration but none of these is a market commodity. The holder of any of the above rights or claims may or G may not be able to find a ready buyer at a given time; conversely a prospective buyer may not find any of the above rights or claims available for purchase by going to the market at any time. Contrary to this, REP licenses h~d always a market. There were people willing to sell arid H others willing to buy REP licences at all times. Its innate
MIS. YASHA OVERSEAS v. COMMISSIONER OF SALES TAX & ORS.
923
value coupled with free transferability made REP licences A into a market commodity and it was that aspect of the matter that Vikas case referred to for holding that REP licences could not be classified as actionabfo claims. Those were goods properly so-called having innate value and a ready market. The position becomes further clear B by the completely contrasting findings in Sunrise case (in regard to lottery tickets) and in Vikas case (in regard to REP licences). There is no slightest doubt that the decision in Sunrise case in no way affects the position insofar as REP licences are concerned and the legal position in regard to their sale is concluded by the decision in Vikas case. [Para 29] [945-E-H; 946-A-F]
3.1 The Duty Entitlement Passbook Scheme (DEPB) is exactly the same as REP licence. Like REP license it has an innate value and for which it freely sells in the F market. The submission that DEPB, unlike REP licence was not a licence for import of goods is clearly misconceived and unacceptable. DEPB is not a licence simply because under the liberal import policy no licence is required to import a very large number of goods and very few items, placed under the negative list, require a licence for import. It cannot be said that DEPB is materially different from REP licence and its transfer by way of sale would not be exigible to sales tax. [Para 36] [951-B-C]
c
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H
924 SUPREME COURT REPORTS
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A 3.2 The DEPB cannot be seen either as a debt or as a beneficial interest in movable property not in possession of the claimant. The DEPB like REP licence has its own intrinsic value and the purchaser, on payment of consideration, buys something for its value. Thus, the BDEPB credit is clearly 'goods' within the meaning of sales tax laws and its sale clearly exigible to tax. [Para 40] [952D-E]
3.3 If DEPB (or for that matter REP license) has to be compared with a lottery ticket, it can only be compared c with a lottery ticket that has won the prize. The prizewinning lottery ticket ceases to be a mere piece of paper having no value itself. It acquires inherent value and becomes itself a thing of value. Imagine a situation where prize winning lottery tickets are freely available for sale. D In buying the prize winning lottery ticket the purchaser would pay the consideration for the value that the piece of paper has acquired and in that situation the ticket cannot be described as anything else but 'goods'. [Para 41] (952-F-H]
E
3.4 The DEPB can be compared with prepaid meal tickets or prepaid petrol coupons or accumulated flying miles. A meal ticket, a petrol coupon or flying miles credit has its own intrinsic value. If permitted free transferability those would soon become market commodities and F would be sold and bought for their value as 'goods'. [Para 42] [953-A-B]
,.
Vikas Sales Corporation v Commnr. Of Commercial Taxes (1996) 4 S CC 433 - affirmed and relied on.
G
Sunrise Associates v Govt. of NCT of Delhi (2006) 5 SCC 603 - Explained .
H. Anraj v Govt. of Tamil Nadu (1986) 1 SCC 414 - referred to.
H
CIVIL APPELLATE JURISDCTION : Civil Appeal No.
925
MIS. YASHA OVERSEAS v. COMMISSIONER OF SALES TAX & ORS. [AFTAB ALAM, J]
2155 of 2000.
A
From the Judgment & Order dated 4.8.1999 of the High Court of Delhi at New Delhi in WP No. 4437/1999.
WITH
Civil Appeal Nos. 6893/2003, 407512007, 3316/2008, . B 3318/2008 and 3320/2008
Shekhar Naphade, T.L.V. Iyer, Pradeep Misra, Jay Savla, Reena Bagga, Akshit Gadhok, Randhir Chawla, Pradeep Tara, Praveen Kumar, Reena Saigal, Rajiv Agnihotri, Prasanthi c Prasad (NP), AK. Jain, Rajesh Jain, Rajesh Kumar, Rekha Pandey, Veruna Bhandari Gugnani,Ashok Bhan, Neera Gupta, A. Tarique, D.S. Mahra, Ravindra K. Adsure, Subhangi Tuli and R. Sathish for the appearing parties.
The Judgment of the Court was delivered by
D
AFTAB ALAM, J. 1. Leave granted in the three Special Leave Petitions in this batch of six cases.
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926
'
A the decision in Vikas while upholding the taxability of REP licences, referred approvingly to Anraj which was expressly overruled by Sunrise. Further, the additional reasons given in Vikas for holding that REP licences were 'goods' were also disapproved by the Constitution Bench and, therefore, it must B be held that the decision in Vikas too stood impliedly overruled.
"
MIS. YASHA OVERSEAS v. COMMISSIONER OF 927 SALES TAX & ORS. [AFTAB ALAM, J.]
more than a sale of a chance to win a prize and no transaction A of sale of moveable property takes place or is involved in the sale of a lottery ticket, the ticket itself being merely a token of the chance purchased. It was alternatively argued that assuming, though not admitting that lottery tickets are a kind of movable property or some kind of merchandise they would be so only in B the limited sense but in pith and substance they are 'actionable claims' that are expressly excluded from the definition of 'goods'. A two-Judges' Bench of this Court repelled both the contentions and in paragraph 27 of the judgment held that :
B
" ....... a sale of a lottery ticket conff?rs on the purchaser C thereof two rights (a) a right to participate in the draw and (b) a right to claim a prize contingent upon his being successful in the draw. Both would be beneficial interests in movable property the former 'in praesenti', the latter 'in future' depending on a contingency. Lottery tickets, not as o physical articles. ·but as slips of paper or memoranda evidence not one but both these beneficial interests in movable property which are obviously capable of being transferred, assigned or sold and on their transfer, assignment or sale both these beneficial interests are E made over to the purchaser for a price. Counsel for the dealers sought to contend that the concept of a lottery cannot be sub-divided in two parts, namely, a right to participate and a right to receive the prize but the two together constitute one single right. It is not possible to F accept this contention for the simple reason that the two entitlements which arise on the purchase of a lottery ticket are of a different character, inasmuch as the right to participate arises in praesenti, that is to say it is a choate or perfected right in the purchaser on the strength of which he can enforce the holding of the draw, while the other is G inchoate right which is to materialize in future as and when the draw takes place depending upon his being successful in such draw. Moreover, on the date of the purchase of the ticket, the entitlement to participate in the draw can be said to have been delivered unto the possession of the H
[2008) 7 S.C.R
928 SUPREME COURT REPORTS
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purchaser who would be enjoying it from the time he has purchased the ticket and as such it would be a chose in possession while the other would be an actionable claim or a chose in action as has been held in Jones v. Carter [8 QB 134 : 115 ER 825] and King v. Connare [61 CLR 596] on which counsel for the dealers relied."
On the basis of the above the court, in paragraph 33 of the judgment concluded as follows:
c
D
"In the light of the aforesaid discussion my conclusions are that lottery tickets to the extent that they comprise the entitlement to participate in the draw are "goods" properly so called, squarely falling with the definition of that expression as given in the Tamil Nadu Act, 1959 and the Bengal Act, 1941, that to that extent they are not actionable claims and that in every sale thereof a transfer of property in the goods is involved."
Ten years later the question of taxability of REP license under the sales tax enactments of Tamil Nadu, Kerala and Karnataka came up for consideration before this court in Vikas. E Before referring to the decision it will be useful to see what exactly REP license is and how the matter came to this court.
M/S. YASHA OVERSEAS v. COMMISSIONER OF 929 SALES TAX & ORS. [AFTAB ALAM, J.]
.4
__..
Export Policy for the period April, 1988 to March, 1991. The A Policy had the definition clauses in Chapter I where 'Registered Exporter' was defined to mean a person holding a valid Registration Certificate issued by the specified designated authorities for the purposes of Export Promotion'. Chapter XV of the policy document dealt with the Import Policy for Registered B Exporters. Paragraph 164 in that chapter declared that the object of the scheme was to provide to the Registered Exporters by way of import replenishment, the essential inputs required in the manufacture of the products ·exported and also to allow certain flexibilities to enable diversification of the export c products. Paragraph 165(1) provided that all exports subject to certain specified exception would qualify for the grant of import replenishment and paragraph 166(1 ), dealing with the extent of replenishment read as follows :
''The extent of import replenishment permissible against D each product e'lumerated in column 2 of Appendix 17 shall be that set out in column 3 thereof. These percentages will apply in the case of exports made on or after 1.4.1988, except for registered contracts, to which the relevant provisions would apply." E
E
The two special features of REP licence were the flexibility in its utilisation and its easy transferability (paragraphs 175 & 183(1) respectively of the policy document). Under the Import and Export regime in existence at that time all imports against F licences or even under the Open General Licence were subject to 'actual user condition'. A REP licence allowed its holder to import licensed goods, free from 'actual user condition' but a REP licence was freely transferable and it did not require any approval or endorsement by the Licensing Authority. The registered importer to whom it was granted in the first instanceG could transfer it to anyone else and the transferee in turn could further transfer it to others. It could be endorsed in favour of another party by the previous endorsee. Its transfer did not require any approval or endorsement by the licensing authority and it was simply govern_ed by the ordinary law of the land. It H
SUPREME COURT REPORTS
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930
~
A remained valid for a period of 18 months from the date of its issue. In a nutshell during the previous licence-bound import and export regime the REP licence was a kind of freely transferable, pre-duty paid import licence not subject to 'actual user condition'. It was thus a highly attractive and sought after instrument/means Bfor importing goods.In_Vikas_this Court noted that a number of registered exporters who obtained REP licences sold them to others for profit. In fact those licences were being traded freely in the market and stock exchanges.
G 11. The matter finally came to this court in a batch of appeals from the High Courts' decisions and writ petitions directly filed here, with the leading case being Vikas Sa/es Corporation and was decided by a Bench of three-Judges.
H
M/S. YASHA OVERSEAS v. COMMISSIONER OF 931 SALES TAX & ORS. [AFTAB ALAM, J.]
-r
•
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judgments were influenced mainly by the decision in Anraj A (Paragraphs 2 & 6 of the decision reported in SCC) but then this court went on to examine the matter on its own. It referred to Entry 54 in List II of the Seventh Schedule to the Constitution to which the Sales Tax Acts of the different States are referable and also Entry 92-A of List I that is the legislative head for the B Central Sales Tax Act (Paragraph 10). It then referred to the definition of 'goods' as given in clause 12 of Article 366 of the Constitution and the expanded definition of the expression 'tax on the sale or purchase of goods' as contained in clause 29-A of that Article after its amendment by the Forty-sixth Amendment c Act, 1982 and observed that sub-clauses (c) & (d) of the amended definition were relevant to the controversy before the court. The two clauses are as follows:
"366 (29-A) - "tax on the sale or purchase of goods" includes -
D
(a) xxx xxx xxx xxx (b) xxx xxx xxx xxx
(c) a tax on the delivery of goods on hire-purchase or any E system of payment by installments;
(d) a tax on the transfer of the right to use any g.oods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration.
The court then examined the definition of 'goods' as given in section 2(7) of the Sales of Goods Act and since it means, subject to certain exceptions, every kind of movable property, and since that expression is not defined in any of the Sales Tax enactments, it turned to the meanings of 'moveable property' and 'immoveable property' under the General Clauses Act. It further noticed that the General Clauses Acts of the three States gave identical definition of the two expressions.
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,
A 13. The Court then referred to the definition of 'goods' in the Central Sales Tax Act, 1956 and the sales tax enactments of the three States, Tamil Nadu, Karnataka and Kerala and found that in all the three states 'goods' was defined to mean all kinds of moveable property, subject to certain exceptions like B newspapers, actionable claims, stocks, shares, securities etc.
G
H
"The above provisions do establish that REP Licences have their own value. They are bought and sold as such. The original licensee or the purchaser is not bound to import the goods permissible thereunder. He can simply sell it to another and that another to yet another person. In
MIS. YASHA OVERSEAS v. COMMISSIONER OF 933 SALES TAX & ORS. [AFTAB ALAM, J.]
other words, these licences/Exim Scrips have an inherent A value of their own and are traded as such. They are treated and dealt with in the commercial world as merchandise, as goods. A REP Licence/Exim Scrip is neither a chosein-action nor an actionable claim. It is also not in the nature of a title deed. It has a value of its own. It is by itself a B property - and it is for this reason that it is freely bought and sold in the market. For all purposes and intents, it is goods. Unrelated to the goods which can be imported on its basis, it commands a value and is traded as such. This is because, it enables its holder to import goods which he c cannot do otherwise. (Wi~h effect from 1.3.1992, of course, the very policy and system under which these licences/ scrips were being issued, has been discontinued."
Having thus arrived at its conclusion quite independently, the court observed that the Karnataka and Madras High Courts D in their respective judgments had pl?ced strong reliance upon the earlier decision in Anraj. The court then briefly examined Anraj and, in paragraph 32 of the judgment, expressed its agreement with the view taken in the earlier decision as follows:
•
"We are of the opinion that the ratio of the said decision fully supports the contention of the States herein. As rightly pointed out by the Karnataka High Court, the content of REP Licence/Exim Scrip is far more substantial and real than that of a lottery ticket. If lottery tickets are goods, there is no reason why these licences/scrips are not goods."
E
F
The court also rejected the submission that REP licence was in the nature of an actionable claim and was, therefore, expressly excluded from the definition of 'goods' in the Sales G Tax Acts. In this regard, in paragraphs 34 and 35 of the judgment the court observed and held as follows :
"We are also of the opinion that these licences/scrips cannot be treated as actionable claims. "Actionable claims" is defined in Section 3 of the Transfer of Property H
934
SUPREME COURT REPORTS
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A
Act in the following words:
8
c
D
E
When these licences/scrips are being bought and sold freely in the market as goods and when they have a value of their own unrelated to the goods which can be imported thereunder, it is idle to contend that they are in the nature of actionable claims. lndeed,'in Anrajthe main contention of the petitioners was that a lottery ticket was in the nature of an actionable claim. The said a;gument was rejected after an elaborate discussion of law on the subject. We agree with the said decision and on that basis hold that the REP Licences/Exim Scrips are not in the nature of actionable claims."
The court then considered the decisions relied upon on behalf of the assessees and held those were of no assistance to the appellants/petitioners before the court. Then commenting F upon the decision relied upon by the counsel for the State of Tamil Nadu the court made the following observation in paragraph 42 of the judgment:
G
" .... Having regard to the context in which the said question had arisen, we do not think it necessary to refer to the observations relied upon since the material referred to by us on the meaning of the expression "moveable property" and the decision in Anraj is more to the point."
The court also rejected the various other ancillary H submissions made on behalf of the assessees and finally upheld
M/S. YASHA OVERSEAS v. COMMISSIONER OF 935 SALES TAX & ORS. [AFTAB ALAM, J.]
the levy of tax on the transfer of REP licences under Karnataka and Tamil Nadu Sales Tax Acts.
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936 SUPREME COURT REPORTS
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-.
JI
A making a survey of the provisions of the Constitution and the other laws within the frame work of which the issue arose for consideration. It referred to Entry 54 of List 11 of the Seventh Schedule and Article 246(3) of the Constitution. It also referred to Entry 92-A of List I of that Schedule. It noted that Clause 12 of BArticle 366 of the Constitution, before its amen'dment, defined 'goods' as including "all materials, commodities and articles" but it did not define the expression 'sale of goods'. It then referred to the Constitution Bench decision in State of Madras V Gannon Dunkerley & Co. (Madras Limited), [1959 SCR 379] that held that in the absence of a definition in the Constitution the c expression must have the same meaning as given tc it in section 4( 1) of the Sales of Goods Act where it is defined as a "contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price". The narrow meaning ascribed Dto the expression by this court was naturally followed by courts all over the country and this led to the amendment of Article 366 by insertion of clause 29A, defining 'Sale of '3oods' so as to include the six kinds of transactions which, as a result of the Court's decision in Gannon Dunkerley, were excluded from the expression. It took note of sub- clause (a) of clause 29-A which E is as follows:
"29-A "tax on the sale or purchase of goods" includes-
F
(a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration;
G
and such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made."
The Court summed up the legal position emerging from the insertion of clause 29A in Article 366 of the Constitution in paragraph 7 of the judgment as follows
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937
c
...
-'
'(
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,;
A
'Therefore in order to constitute a de_emed sale within the meaning of Article 366(29-A) (a), there has to be (1) goods (2) a transfer of property in the goods (3) valuable consideration. The requirement of an agreement for sale is not necessary for constituting a sale under this sub-clause. The absence of any one of these elements would mean that the transaction far from being a sale within Gannon Dunkerley definition, would not even be a deemed sale within the extended definition of sale under Article 366(29-A) (a)."
B
The Court then went on to note that following the insertion of clause 29-A in Article 366 of the Constitution, consequential amendments were made in the States' Sales Tax laws to take full benefit of the expanded meaning given to the expression 'sale or purchase of goods' and observed that in all the States'D Acts !lie expression "goods" was given the sarPe meaning as in the Sale of Goods Act and more importantly, in all those definitions 'actionable claim' was expressly excluded from the definition of 'goods'. It further noted that 'actionable claim' was defined in Section 3 of the Transfer of Property Act, 1882 as E meaning
E
"a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the civil courts recognize as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent."
F
Having thus laid out the statutory framework the decisionG in Sunrise examined the dealers' contention that a lottery ticket was only a slip of paper or memoranda evidencing the right of the holder to share in the prize or the distributable funds and was merely a convenient mode for ascertaining the identity of H
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938 SUPREME COURT REPORTS
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A the winner. It then examined the conclusion arrived at by the Court in Anraj and in paragraph 14 of the judgment summed up the ratio of the Anraj decision as follows:
"The Court in H .An raj came to the conclusion that the transfer of a lottery ticket upon consideration paid by the B purchaser was not a mere contract creating an obligation or right in personam between the parties, but was in the nature of a grant. The Court noted the various definitions of the word "lo.ttery" in dictionaries and authoritative text books and decisions of the courts and held that a lottery was composed of three essential elements, namely, (1) chance, (2) consideration; and (3) prize. As we have mentioned earlier, according to the learned Judges a sale of a lottery ticket conferred on the purchaser two rights viz. (a) the right to participate in the draw, and (b) the right to D claim a prize contingent upon the purchaser being sucressful in the draw. Both were held to be beneficial interests in movable property, the former in praesenti, the latter in futuro depending on the contingency."
E The Sunrise decision then proceeded to note how the decision in Anraj was interpreted by the Karnataka Court (paragraph 19 of the judgment) and quite differently to it by the Delhi High Court (paragraph 23 of the decision).
M/S. YASHA OVERSEAS v. COMMISSIONER OF 939 SALES TAX & ORS. [AFTAB ALAM, J.]
<C I
sale of DEPB would attract sales tax under the Bombay Sales A Tax Act, 1959. On behalf of the State of Maharashtra it was submitted that considering the valuable right conferred by the DEPB, it was an item of movable property and therefore "goods" within the definition of the word in Section 2( 13) of the Act. However, the Court firmly refused to go into that controversy B observing that the validity of the decision in Vikas was not an issue before it for consideration. In paragraph 29 of the decision in Sunrise it was clearly stated as follows:
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..
;.
"It is necessary at this stage to clarify that the order of c reference in Sunrise v. NCT, Delhi is limited to the question whether lottery tickets are "goods". We have not been called upon to answer the question whether REP licences (or the DEPB which has replaced the REP licences) are "goods". Although we have heard counsel at length on this, having regard to the limited nature of the r.eference, D we d0 not decide the issue. The decision in Vil{as Sales was referred to only because it approved the reasoning in H.Anraj and not because the referring court disagreed with the conclusion in V.ikas Sales that REP liecenes were goods for the purposes of levy of sales tax. Indeed REP E licences were not the subject-matter of the appeal before the referring court and could not have formed part of the reference. The only question we are called upon to answer it whether the decision in H.Anraj that lottery tickets are goods for the purposes of Article 366(29-A) (a) of the F Constitution and the State sales tax laws, was correct."
Having thus identified the issue that came up for consideration before it, the Court, in view of the apparent divergence in understanding Anraj, once again analysed the decision and in paragraphs 32 and 33 of the judgment held andG found that in Anraj the lottery ticket was held to be 'goods' - not as a physical article but as a slip of paper or memorandum evidencing (a) the right to participate in the draw, and (b) the right to claim a prize contingent upon the purchaser being successful in the draw. Further, for the purpose of levy of sales H
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940
[2008] 7 S C.R.
A tax, lottery ticket could be regarded as' goods' properly so called insofar as it entitled its holder to take part in the draw. In other words, lottery ticket, to the extent it evidenced the right to claim the prize, was not 'goods' but an actionable claim and, therefore, expressly excluded from the definition of 'goods' under the sales B tax laws. A transfer of it was consequently not a sale. The lottery ticket per se had no innate value. The Delhi High Court was, therefore, plainly in error in interpreting and following Anjar.
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"The word "goods" for the purposes of imposition of sales tax has been uniformly defined in the various sales tax laws as meaning all kinds of movable property. The word "property" may denote the nature of the interest in goods and whe;1 used in this sense means title or owner;:;hip in a thing. The word may also be used to describe the thing itself. The two concepts are distinct, a distinction which must be kept in mind when considering the use of the word in connection with the sale of goods. In the Dictionary of Commercial Law by A. H. Hudson (1983 Edn.) the difference is clearly brought out. The definition reads thus:
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'"Property' - In commercial law this may carry its ordinary meaning of the subject-matter of ownership. But elsewhere, as in the sale of goods it may be used as a synonym for ownership and lesser rights in goods.
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Hence, when used in the definition of "goods" in the different sales tax statutes, the word "property" means the subject-matter of ownership. The same word in the context of a "sale" means the transfer of the ownership in goods."
(Emphasis added)
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At this stage the decision in Vikas once again came under
941
MIS. YASHA OVERSEAS v. COMMISSIONER OF SALES TAX & ORS. [AFTAB ALAM, J.)
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reference; it was pointed out (in paragraphs 38 to 40 of the A decision in Sunrise) that in Vikas the Court observed that REP licences were being bought and sold freely in the market as goods and took their saleability as an additional ground to hold that it would be idle to contend that those licences were in the nature of actionable claim. In other words, saleability was a B feature of distinction between goods and actionable claim (which but for its express exclusion from the def)nition is also a kind of goods). Goods were saleable but actionable claim was not. The decision in Sunrise by giving many illustrations showed that transferability for value was as much an attribute of c actionable claim as any other kind of goods and transferability was not the point of distinction between actionable claim and other goods that could be sold. Hence, to say that an article or right was goods and not actionable claim because it was saleable was pointless. Commenting upon this aspect of the D decision in Vikas the Constitution Bench in paragraph 38 of the decision in Sunrise observed as follows:
"It was assumed that actionable claims are not transferable for value and that that was the difference between "actionable claims" and those other goods which are covered by the definition of "goods" in the Sale of Goods Act, 1930 and the sales tax laws. The assumption was fallacious and the conclusion insofar as it was based on this erroneous perception, equally wrong."
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The decision in Sunrise then examined the nature of a ticket It referred to Webster's Words and Phrases, Permanent Edn., Vol.25-A and in paragraph 43 came to hold as follows:
"The sale of a ticket does not necessarily involve the sale of goods. For example, the purchase of a railway ticket gives the right to a person to travel by railway. It is nothingG other than a contract of carriage. The actual ticket is merely evidence of the right to travel. A contract is not property, but only a promise supported by consideration, upon breach of which either a claim for specific performance H
942 SUPREME COURT REPORTS
[2008] 7 S.C.R
A or damages would lie (Said v. Butt) [1920 (3) KB 497]. Like railway tickets, a ticket to see a cinema or a pawnbroker's ticket are memoranda or contracts between the vendors of the ticket and the purchasers. Cases on whether the terms specified on such tickets bind the B purchaser are legion. It is sufficient for our purpose to note that tickets are themselves, normally evidence of and in some cases the contract between the buyer of the ticket and its seller. Therefore a lottery ticket can be held to be goods if at all only because it evidences the transfer of a c right."
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(Emphasis added)
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It further pointed out that the purchaser of lottery ticket simply acquires a claim to a conditional interest in the prize money which was not in the purchaser's possession. It, therefore, followed that the right would fall squarely within the definition of actionable claim and would there:ore be excluded from the definition of 'goods' under the Sale of Goods Act and the sales tax statutes. Finally, in paragraph 45 of the decision Sunrise found and held as follows:
"45. The further distinction sought to be drawn in H.Anraj between the chance to win and the right to participate in the draw was in our opinion unwarranted. A lottery having been held to be in essence a chance for a prize, the sale of a lottery ticket can only be a sale of that chance. There is no other element. Every right can be sub-divided into lesser rights. When these lesser rights culminate in a legally recognizable right, it is the latter which defines the right. The right to participate in the draw is a part of the composite right of the chance to win and it does not feature separately in the definition of the word "lottery". It is an implicit part of the chance to win. It is not a different right.
The separation is specious since neither of the rights can stand without the other A draw without a chance to win is meaningless and one cannot claim a prize without
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MIS. YASHA OVERSEAS v. COMMISSIONER OF 943 SALES TAX & ORS. [AFTAB ALAM, J]
participating in the draw. In fact the transfer of the chance A to win assumes participation in the draw."
(Emphasis added)
It further held that even ifthe right to participate in the draw was held to be a separate right there would be no difference and in paragraph 48 of the decision observed as follows :
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"Even if the right to participate is assumed to be a separate right, there is no sale of goods within the meaning of sales tax statutes when that right is transferred. When H.Anraj said that the right to participate was a beneficial interest C in movable property, it did not define what that movable property was. The draw could not and was not suggested to be the movable property. The only object of the right to participate would be to win the prize. The transfer of the right would thus be of a beneficial interest in movable D property not in possession. By this reasoning also a right to participate in a lottery is an actionable claim."
)
It thus arrived at the conclusion that the decision in Anraj wrongly held that sale of lottery ticket is a sale of goods.
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[2008] 7 S.C.R.
SUPREME COURT REPORTS
944
A railway ticket, a ticket to see a cinema or a pawnbroker's ticket pointed out that the tickets were normally evidence of and in some cases the contract between the buyer of the ticket and its seller. Being a contract or evidence of a contract, naturally a ticket can not be property either as a thing (of value) in itself or Btitle or ownership to anything. It, therefore, followed that the sale of lottery ticket did not involve transfer of 'property' either in the sense of the thing itself (goods) or in the sense of title or ownership (sale).
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945
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MIS. YASHA OVERSEAS v. COMMISSIONER OF SALES TAX & ORS. [AFTAB ALAM, J]
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paragraphs 39 and 40 of the decision, the Sunrise decision gave illustrations of a number of actionable claims which are transferable.
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SUPREME COURT REPORTS
[2008] 7 S.C.R.
946
A a given time; conversely a prospective buyer may not find any of the above rights or claims available for purchase by going to the market at any time. Contrary to this, REP licenses had always a market, that is to say, there were people willing to sell and others willing to buy REP licences at all times. Its innate value B coupled with free transferability made REP licences into a market commodity and it was that aspect of the matter that Vikas referred to for holding that REP licences could not be classified as actionable claims: Those were goods properly so-called having innate value and :=i ready market. The position becomes c further clear by the completely contrasting findings in Sunrise (in regard to lottery tickets) and in Vikas (in regard to REP licences). In Sunrise <ifter giving illustrations of transferable actionable claims (paragraphs 39 and 40) paragraph 41 begins as:
We thus have not the slightest doubt in our mind that the decision in Sunrise in no way affects the position insofar as REP licences are concerned and the legal position in regard to their sale is concluded by the decision in Vikas.
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947
MIS. YASHA OVERSEAS v. COMMISSIONER OF SALES TAX & ORS. [AFTAB ALAM, J.)
the provisions of law under which the present cases arise and A to establish their similarity with the statutory provisions that came up for consideration in Vikas and Sunrise. As noted above, the present appeals arise under the Delhi Sales Tax Act, 1975, the Kera la General Sales Tax Act, 1963 and the Bombay Sales Tax Act, 1959. B
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""goods" includes all materials, articles, commodities and all other kinds of movable property, but does not include c newspapers, actionable claims, stocks, shares, securities or money."
The expression "sale" is defined in Section 2(1) as follows:
""sale" with its grammatical variations and cognate D expressions, means any transfer of property in goods by one person to another for cash or for deferred payment or for any other valuable consideration, and includes --
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In the Kerala General Sales Tax Act "goods" is defined in Section 2(xii) as follows:
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""goods" means all kinds of movable property (other than newspapers, actionable claims, electricity, stocks and F shares and securities) and includes live stock, all materials, commodities and articles (including those to be used in the construction, fitting out, improvement or repair of immovable property or used in the fitting out, improvement or repair of movable property) and every G kind of property (whether as goods or in some other form) involved in the execution of a works contract, and all growing crops, grass or things attached to, or forming part of the land which are agreed to be severed before sale or under the contract of sale." H
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948 SUPREME COURT REPORTS
[2008] 7 S.C.R.
A
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"Sale" is defined here in Section 2(xxi) as follows:
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"'sale' with all its grammaiical variations and cognate expressions means every transfer [whether in pursuance of a contract or not) of the property in goods by one person to another in the course of trade or business for cash or for deferred payment or other valuable consideration, but does not include a mortgage, hypothecation charge or pledge;
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Explanation (38) - a transfer of right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration shall be deemed to be a sale.
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In the Bombay Sales Tax Act "goods" is defined in Section 2(13) as follows:
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""goods" means every kind of movable property (not being newspapers or actionable claims or money, or stocks, shares or securities), and includes growing crops, grass, and trees and plants (including the produce thereof) and all other things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale."
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"Sale" is defined in Section 2(28) as follows:
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""sale" means a sale of goods made within the State for cash or deferred payment or other valuable consideration, and includes any supply by a society or club or an association to its members on payment of a price or of fees or subscription, but does not include a mortgage, hypothecation, charge or pledge; and the words "sell", "buy" and "purchase" with all their grammatical variations, and cognate expressions, shall be construed accordingly."
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M/S. YASHA OVERSEAS v. COMMISSIONER OF 949 SALES TAX & ORS. [AFTAB ALAM, J]
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Schedule C of the Bombay Act contains a list of 'Goods, Other Than Declared Goods, The Sale Or Purchase Of Which Is Subject To Sales Tax Or Purchase Tax'. At Sl.No.26(6) of the Schedule, 'credit of duty entitlement pass book' is entered with sales tax or purchase tax leviable at the rate of four per cent.
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"The objective of Duty Entitlement Passbook Scheme is to neutralize the incidence of basic customs duty on the import content of the export product. The neutralization shall be provided by way of grant of duty credit against the export product. The duty credit under the scheme shall be
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[2008] 7 S.C.R
SUPREME COURT REPORTS
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calculated by taking into account the deemed import content of the said export product as per Standard Input Outpt Noms and determine basic custon:is duty payable on such.deemed imports. The value addition achieved by export of such product shall also be taken into account while determining the rate of duty credit under the Scheme.
Under the Duty Entitlement Pass Book (DEPB) Scheme, an exporter shall be eligible to claim credit as a specified percentage of job value of exports made in freely convertible currency. The credit shall be available against such export products and at such rate as may be specified by the Director General of Foreign Trade by a Public Notice issued in this behalf.
Any item except those appearing in the Negative List of Imports shall be allowed for import without payment of basic customs duty, special duty of customs as well as additional duty of customs, against the credit under a Duty Entitlement Pass Book (DEPB). The holder of Duty Entitlement Pass Book (DEPB) shall have the option to pay additional customs duty, if any, in cash as well."
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Paragraph 7.26 provided that third party exports would also be admissible for grant of credit under DEPB. Paragraph 7.29 provided that DEPB might be issued on (a) Post export basis and (b) Pre export basis.
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"The DEPB on post export basis and/or the items imported against it are freely transferable. The transfer of DEPB shall however be for import at the port specified in the DEPB which shall be the port from where exports have been made. However, imports from a different port shall be allowed as per the terms and conditions of notification issued by Department of Revenue "
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Paragraph 7 40 stated that pre-export DEPB would be
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M/S. YASHA OVERSEAS v. COMMISSIONER OF 951 SALES TAX & ORS. [AFTAB ALAM, J.]
non-transferable and also subject to actual user condition but in A this case we are not concerned with pre-export DEPB.
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952 SUPREME COURT REPORTS
[2008] 7 S.C.R.
A sale of DEPB only involved the transfer of the right to claim credit. The credit not being in possession of the claimant, the right to utilize it against duty payable on a future import was certainly a beneficial interest in that movable property. Seen thus the credit would still fall within the second part of the Bdefinition of actionable claim.
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M/S. YASHA OVERSEAS v. COMMISSIONER OF SALES TAX & ORS. [AFTAB ALAM, J]
953
c
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B
The Constitution Bench decision in Sunrise does not alter the position in regard to levy of tax on sale of REP licence and on that issue the three-Judge Bench decision in Vikas continues to hold the field. ·
DEPB has an intrinsic value that makes it a market D commodit'.'· Therefore, DEPB, like REP licence q1•alifies as 'goods' within the meaning of the Sales Tax laws of Delhi, Kerala and Mumbai and its sale is exigible to tax.
Appeals dismissed.
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2 issues framed by the court
Whether Vikas Sales Corporation holding REP licences exigible to sales tax stands impliedly overruled by Sunrise Associates.
If Vikas remains good law, whether its ratio applies to sale of Duty Entitlement Passbook (DEPB) credits under sales tax laws.
Colour shows how this judgement treated each authority
Vikas Sales Corporation v Commnr. Of Commercial TaxesAffirmed¶43
(1996) 4 S CC 433 · Who else cites this
Sunrise Associates v Govt. of NCT of DelhiExplained¶43
(2006) 5 SCC 603 · Who else cites this
H. Anraj v Govt. of Tamil NaduReferred¶15
(1986) 1 SCC 414 · Who else cites this
State of Madras v Gannon Dunkerley & Co. (Madras Limited)Referred¶20
[1959 SCR 379] · Who else cites this
10 provisions across 4 enactments
M/S. Yasha Overseas
Commissioner of Sales Tax
B.N. Agrawal
G.S. Singhvi
Aftab Alam
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
