CASE NO.: Appeal (civil) 7771-75 of 1996 PETITIONER: VIKAS SALES CORPORATION AND ANR. ETC. ETC. RESPONDENT: COMMISSIONER OF COMMERCIAL TAXES AND ANR. ETC. ETC. DATE OF JUDGMENT: 01/05/1996 BENCH: A.M. AHMADI C.J & B.P. JEEVAN REDDY & SUHAS C. SEN JUDGMENT:
JUDGMENT
1996 (2) SUPP. SCR 204
The Judgment of the Court was delivered by
B:P. JEEWN REDDY, J. Leave granted in Special leave Petitions,
This batch of appeals and writ petitions raise the question – whether the
transfer of an Irnoprt License called R.E.P. Licence/Exim Scrip by the
holder thereof to another person constitutes: a sale of goods within the
meaning of and for the purposes of the Sales Tax enactments of Tamil Nadu,
Karnataka and Kerala. If it does, it is exigible to sales tax. Otherwise
not The Karnataka and Madras High Courts have taken the view that R.E.P.
Licences/Exim Scrips constitute goods and, therefore, on their transfer.
sales tax is leviable. Their judgment, appears to be influenced mainly by
the decision. of this Court in H .Anaj Etc. v .Government of Tamil nadu
Etc, [ 985] Suppl. (3) S.E.R, 342:
2, With a view to conserve precious foreign, exchange and’ to channelise
the Nation’s; economy on desired lines, the Central Legislature enacted the
Imports and Exports (Control) Act in 194. Section 3 em-powers the Central
Government to make provisions by order published in the official gazette
for prohibiting, restricting or otherwise controlling the import into and
export of the goods. from the country. The expression licence” is defined
in clause: (i) of Section 2 to mean a licence granted, including a customs
clearance permit issued; under any control order, Pursuant to Section 3:
and Section 4(a) of the said Act, the Central Government issued the Imports
(Control) Order, 1955. Clause (3)(i) of the Order provides that “save as
otherwise provided in this Order, no person shall import any goods of the
description specified in Schedule I except under and in accordance with a
licence of a customs clearance permit granted by the Central Government or
by any Officer specified in Schedule II. The Order contains elaborate
provisions. governing the grant and cancellation of licences and Conditions
subject to Which the licences have to be operated.
3. The Central Government has been issuing, from time to time, what is
Sailed the Import and Export Policy; published in the form of a brochure.
The Import Policy in vogue during the years concerned herein provided for
issuance Of what is called replenishment licences” (for short “R.E..P.
Licences”). The objective behind the licences was to provide to the
registered exporters the facility of importing the essential inputs
required for the manufacture of the products exported. The essential idea
was to encourage exports and for that purpose import licences called R.E.P.
Licences were issued equal to the prescribed percentage of the value of
exports. These licences were made freely transferable. It was provided that
the transfer such licences did not require any endorsement or permission
from the licencing authority. It was clarified that such would be:
“governed by the ordinary law”. It only required a letter from the
transferor recording. and evidencing the transfer. On that basis, the
transferee; became the due and lawful holder of the licence: and could
either import the goods per-mitted thereunder or sell it to another in
turn.
4. With effect from July 3, 1991, the name of the licence was .changed to
Exim Scrip (Export -Import Licence): The provisions governing the Exim
Scrip were broadly the same as those governing the R.E.P. Licence with
certain minor variations, which are not relevant for our purposes.
5. Several registered exporters who obtained R.E.P. licence/Exim Scrips’
sold them to others for profit. In fact, these licences/Exim Scrips were
being traded freely in the market and on stock exchanges. The sales tax
authorities of certain States proceeded to subject such sales to sales tax
under their respective enactments. The assessees immediately protested
contending that these licences/Exim Scrips do not constitute ”goods”
within the meaning of the relevant .sales tax enactments. and, therefore,
not’ exigible to tax. The matter came up for consideration in the first
instance before a learned Single- Judge of the Karnataka High Court in
Bharat Fritz Werner Ltd. v. Commissioner of Commercial Taxes ,(1992) 86
S;T.C. 170. It. was a writ petition challenging the validity of a circular
issued by the Commissioner of Commercial Taxes, Karnataka, stating that
whenever an Import licence is transferred, it attracts tax Under Section
5(1) of the Karnataka Sales. Tax Act, 1957 as unclassified goods at the
rate of seven percent and directing the: assessing authorities and other
concerned authorities to levy tax accordingly. The learned Judge considered
the definition of “goods’ in. Section 2(m) of the: Karnataka: Act and held
Following Anraj that having: regard to the nature and character of the said
licences .and their free. transferability, they .constitute goods, the sale
whereof is subject sales tax. The learned judge rejected the. argument.
that the said licences :are in the nature .of actionable claims. He held
the import licence not merely enables a person: the: right of indulging in
a business of importing goods but it also. excludes competition. There
fore, it cannot be said. that it is only a beneficial interest’ in respect
of a movable property not in possession of the person but is itself a
Valuable right which. according to the petitioners themselves. is freely
transferable The import, licence therefore must be treated as merchandise
for the purposes of the Act and clearly falls within the definition of
‘goods'”. The learned: Judge further held that the right under this licence
is infact , more concrete and. substantial than the right under a lottery
ticket considered in Anraj. On appeal, a Division Bench of the Karnataka,
High Court affirmed the judgment of the learned Single Judge. The Division
Bench too felted upon the ratio of Anraj and dismissed the appeal in the
following words :
“In, the instant .case, the transfer of R.E.P. Licences confer upon the.
transferee the immediate right to clear. goods covered by the licences at
the Customs barrier. This is .not an inchoate of incomplete right it cannot
be held to materialise in future because its exercise is dependent upon the
transferee buying goods covered by. the licence and bringing them to Indian
shores. Nor can R.E.P. licences be held to be actionable claims .because
the Customs authorities might not clear the goods and the: transferee would
have to commence an action against them: in a Court of Law. In our view.
the transfer of an R.E.P. licence confers upon the transferee. a right
which is choate and perfected and exercisable immediately he presents 16
the. Customs barrier goods of the nature covered thereby.
It must, therefore, follow that R.EP. licences are goods within the meaning
of the said Act and the premium or price received by the transferor thereof
is liable to sales tax thereunder.”
7. A Division Bench of the Madras High Court has also taken the same view
in P.S. Apparels v. Deputy Commercial Tax Officer, T. Nagar, disposed of on
April 4, 1994. Under the said judgment, a large number of writ petitions
were disposed of.
8. Number of appeals have been preferred by the assessees against the
decisions of Karnataka and Madras High Courts, while a number of other
assessees. have approached directly by way of petitions under Article 32 of
the Constitution of India, raising identical questions.
9 The main contention of the learned counsel for appellants/petitioners,
S/Sri K.K, Venugopal, Joseph Vellapally, vaidyananthan and KM Mohan, is
that these licences/scrips are not goods; they are not property; they
represent merely a permission to import goods, Which permission can be
revoked at any time the licencing authority; they are really in the nature
of shares securities which have been expressly excluded from the definition
of “goods” in the relevant enactments. The expression ‘”goods” has been
understood by this Court in State of Madras v. Gannon Dunker1ey & Co.
(Madras) Ltd., [1959] S.C.R..379 in the sense it is defined in the sale of
Goods Act and the said definition cannot and does not comprehend the
licences of the nature concerned .herein. The meanings assigned to the
expression “licence” and “goods” in Various law dictionaries have been
brought to our notice, besides several decisions, Indian and English, by
the learned Counsel. on the basis of the said material, it; is argued that
property is a bundle of rights but every strand in that bundle docs not by
itself constitute property. on the other hand, Sri A.k. Ganguly and Sri
Chandrasekharan, learned Additional Solicitor General, supported the
reasoning and conclusion arrived at by Karnataka and Madras High Courts and
commended it for our acceptance.
11. Entry 54 in List-II of the Seventh Schedule to the Constitution of
India empowers the Sate Legislatures to make laws with respect to “taxes on
the sale or purchase of goods other than newspapers subject to the
provisions of Entry 92-Axs List-I” Entry 92-A of: List-I speaks of “taxes
on the sale or purchase of goods other than newspapers, were such: sale or
purchase lakes place in the course of inter-State trade or commerce”.
The Karnataka Tamil Nadu and Kerala Sales Tax Acts are referrable to Entry
54, While Central Sales Tax Act. 1956 is referrable to Entry 92A, These
entries empower the Stat Legislatures and the Parliament respectively to
levy Sales tax on sale or purchase of goods with the difference! that if it
is a intra-state sale, it is the Slate Legislature which is competent to
levy the .tax, whereas in the. case of inter- state sale. It .is the
Parliament :alone, that can levy tax. Entry 54 in List-II which. is- the
one we are immediately-concerned with in these matters. is a. legislative
head, a head of legislation Being a legislative: head, it must be construed
liberally and: not: narrowly. There appears, no. reason why Entry 54 Should
not be given, its full and due: meaning and content. By giving full effect
to. Entry 54. in List-Il, the filed and Content of: Entry 92-A in List 1 is
in no way affected or curtailed. So far as the meaning of the expression
.”goods is concerned. these two entries .cannot be called competing
entries. There is no overlap-in between them. The meaning given to the said
expression in Entry 54 in List-II. can equally be attributed to the said
expression in Entry 92A in List-I. This is- a consideration witch must
Certainly weigh with the Court in approaching the question. at issue
herein.
12.Clause (12) in Article 366 of the Constitution defines the expression
“goods” in the following words: “goods’ includes all materials com modities
and articles ; Clause [29) in .Article 366, as-amended by the forty sixth
Amendment Act. defines the expression ‘tax on the Sale or purchase. of
goods” in. the following words:
(29A).’Tax the sale or purchase of goods” includes –
(a) a tax on the transfer Otherwise than in pursuance of contract. of
property in any goods Jar cash, deferred payment or other Valuable
consideration
(b) a tax on the transfer of property in goods (whether as, goods or in
some other form) involved in. the execution of a works: contract:
(c) a tax-on the delivery of goods on hire-purchase or any system of
payment by instatements:
(d) a tax on the transfer of the right to use- any goods for .any purpose
(whether or not for a specified: period) for Cash, deferred payment or
other valuable consideration;
(e) a tax on the supply of goods by any unincorporated association
or body of persons to a. member thereof for cash, deferred payment. or
other valuable consideration;
(f) a, tax on the supply by way of or as part of any service or in any
other manner what. So ever of goods; being food or any, other article for
human consumption Or any drink (Whether or not intoxicating), where such
supply or service, is for cash, deferred payment or other valuable
consideration: 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 arid purchase of those goods by the person to whom such
transfer. delivery or supply is made,”
The definition in clause (29A) was inserted. by the forty sixth Amendment.
Act with a view to give an. expansive meaning to the words “tax on the
sale, or purchase of goods”, Clauses (c) and (d) in this definition are
relevant to the. present controversy. Clause (d) provides that even: where
a right to. use any goods is transferable for cash, deferred payment .or
ether valuable consideration, it will be a. sale or purchase of goods for
the purpose of the Constitution:
13. Clause (7) in Section 2 of the. Sale of Goods Act, 1930 defines the
expression “goods” thus “goods’ means every kind of movable property other
than .actionable claims and money; :and includes .stock and shares, growing
crops. grass, and things, attached to or forming part of the land which are
agreed to be severed before sale or under the contract of: sale” (Emphasis
added). Since the Said definition defines the “goods” to ‘mean, ”every
kind of movable property other than actionable claims and money”, it would
be appropriate to notice the definition of “property” in Clause(11). it
reads : “‘property’ means the general property in goods, and not merely a
special property”. It is noteworthy that both these definitions. seek: to
spread the net as wide as possible. While the definition of goods includes
every kind of movable properly Within its ambit ,the definition of property
says that it includes not merely special property. but .general property
in. goods as well.
The ‘General Clauses Act, 1897 defines “movable property’ to; mean
“property of every description except immovable. properly”. The expression
“Immovable property” is defined to “include land Benefits .to arise out of
land and things attached to the earth or permanently fastened to anything
attached to the earth”. The definitions in Karnataka, Tamil nadu and Kerala
General Clauses Acts are identically, worded. In the: absence of definition
of the expression in the sale Tax enactments, the definition in the
respective General Clauses Acts become applicable None of these .Act,, it
may be mentioned, defines the expression ”property”:
14. The Central. Sales Tax Act, 1956 defines the expression, “goods” in
Clause (d) of Section 2 in the following Words:
“‘.Goods’ includes all materials; articles commodities and all other kinds
of movable property, but does not include newspapers, actionable claims,
stocks, shares .and .securities:’
What is relevant to note En that this definition is not only inclusive in
nature, but takes in all kinds Of movable property. It excludes from its
ambit-Certain items; which but for such exclusion, may Well have fallen
within the ambit of the said definition.
15. The Tamil Nadu Sales Tax Act, 1959 defines the expression “goods” in
Clause (j); of Section 2 in the following terms :
“goods’ means all kinds of movable. property (other than newspapers,
actionable claims, stocks and shares and securities) and includes all
materials, commodities, and articles including the goods;(as goods or in
some other form) involved in the execution of a Works contract or those
goods to. be used in the fitting out, improvement or repair of movable
property and all growing crops, grass or things attached to or farming part
of the land which are Agreed to thee severed before sale or under the
contract of sale.”
This definition too includes all kinds of movable property within the
definition of goods -while excluding certain specified items, viz ,
newspapers, actionable claims, Stocks, shares and securities. The Act does
not define the expression ”movable property” which means that the
definition in the General Clauses Act has to be adopted for the purposes of
the Tamil Nadu General Sales Tax Act 16. The definition of “goods” -in the
Karnataka Sales Tax Act, 1957 is no different ,.it reads :
‘”goods’ means all kinds, of movable, property (other than newspapers,
actionable claims, Stocks and shares and securities) and includes live
Stock, all materials, commodities. and articles including goods, as goods
or in some other form involved in the execution of a works contract or,
those goods to be used in the fitting out improvement. or repair of movable
property and all growing crops, grass things attached to ,or forming part
of the land which are: agreed to be severed before: Sale of under the
contract or sale,”
This Act too does not define the expression “movable property.
17. The definition of “goods” in the Kerala General Sales Tax Act may now
be set out :
“goods’ means all kinds of movable property (other than newspapers,
actionable: claims, electricity, stocks and 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 all growing crops, grass or things attached to of
movable property) and all growing are agreed to be severed before sale or
under the contract of sale”
18. Inasmuch as all the aforesaid definitions of the expression “goods” say
that it includes all kinds of movable property, it becomes necessary to
notice the meaning of the expression “movable property” Inasmuch as the
Sales Tax enactments do not define the said expression; we have to adopt
the definition in the respective State’ General Clauses Act. But these
definitions in the General clauses Act too are not very helpful All that
they say is that movable property means property of every kind except
immovable property. The counsel have accordingly brought to our notice the
several meanings: or property and movable property in various legal
dictionaries.
19. In Black’s Lave Dictionary (6th Edition, 1990), the; expression
“property” has been given the following meanings :’
“Property That which peculiar or proper to any person; that which belongs
exclusively to one. In the strict legal sense.: .an aggregate of lights
which are guaranteed and protected by the government. Fulton Light, Heat &
power co. v. state, 65 Misc. Rep. :263,121N.Y.S. 536 The term is said to
extend to every species of valuable right and interest. More specifically,
ownership; the unrestricted and exclusive right to a thing; the right to
dispose of a thing in every legal way, to possess it, to use it, and to
exclude every one else from interfering with it. That dominion or
indefinite right of use or disposition which one may lawfully exercise over
particular things or subjects. The exclusive right of possessing, enjoying,
and disposing of a thing. The highest right of man can have to anything;
being used to refer to that right which one has to lands or tenements,
goods or chattels, which no way depends on another man’s courtesy.
The word is also commonly used to denote everything which is the subject of
ownership, corporeal or incorporeal, tangible or intangible, visible or
invisible real or personal everything that has an exchangeable value or
which goes to make up wealth or estate. It extends to every species of
valuable right and interest and includes real and personal property,
easements, franchises. and incorporeal here ditaments , and includes every
invasion of one’s property rights by actionable wrong. Labberton v.
General cas . co. of America, 53 wash. 2d 180 332 p.2d. 250 252, 254
property embraces everything which is or may be the subject of ownership,
whether a legal ownership, or whether beneficial, or a private ownership.
Davis v. Davis. Tax civ. App. 495 s.w.2d 607. 611. Term includes not only
ownership and possession but also the right of use and enjoyment of lawful
purposes. Hoffmann v. Kinealy, Mo,389s. w. 2d 745, 75 property, within
constitutional protection, denotes group of rights inhering in citizen’s
relation to physical thing, as right to possess, use and dispose of it.
Cereghino v. State by and Through state Highway Commission, 230 Or., 439
370 p.2d 694.697. goodwill is property, Howell v. Bowden, Tex civ App., 368
S,W. 2d 842,848; an is an insurance policy and rights incident thereto,
including a right to the proceeds, Harris v. Harris, 83 N.M 443,493 The
Dictionary further says “property is either real or immovable; or personal
or movable”. It then proceeds: to give the meaning of the expression
“absolute property”, “common property” “intangible property”, movable
property”, “personal property” “private property” arid “public property”
among others. The above definition shows the wide; meaning. attached to the
expression. It is said to extend to every species of valuable right and
interest. It denotes every thing which is the subject of ownership,
corporeal or incorporeal tangible or intangible, visible or invisible, real
or personal it includes “everything that has an extendable value”. It
extends to every species of valuable right and interest.
To the same effect is the definition in the dictionary of commercial Law by
A.H. Hudson (published by Butterworths; 1983). It reads
”Property. In commercial law this may carry its ordinary meaning of the
subject matter of ownership, e.g. in bankruptcy referring to the property
of the debtor divisible amongst creditors. But elsewhere as in sale of
goods it may be used as a synonym for ownership and lesser rights in,
goods. The Sale of Goods Act, 1979 s.2 (1) makes transfer of property
central to sale. Section 61(1) provides that ‘property’ means the general
property in goods, and not merely a special property; ‘General Property’ is
tantamount to ownership bailees who have possession and not ownership and
others with limited interests are said to have a ‘special property’ as
their interest,”
20. Jowitt’s Dictionary of English Law (Sweet & Maxwell Limited, 1977)
Volume-I also sets out the meaning of the expression “property” as well as
the meaning of the expression: “general property” and “special property” We
may set them out
“property (Norm. Fr. Proprete ; Lat, proprietas: proprius, one’s own), the
highest right a man can have to anything, being that right which one has to
lands or tenements, goods or chattels which does not depend on another’s
courtesy.
In its largest sense property signifies; things and right considered as
having a money Value, especially with reference to transfer or succession,
and to their capacity of being. injured Property includes not only
ownership estates and interest in corporeal things, but also rights such as
trade marks, copyrights, patents, and rights in personam capable of
transfer or transmission such as debts.
Property is of two kinds, real property (q.v.) and personal
Property in reality is acquired by entry; conveyance, or devise; and in
personality, by many ways, but most usually by gift, bequest, or sale.
Under the Law of Property Act, 1925, S. 205, “property” includes any thing
in action and any interest in real or personal property. There must be a
definite interest; a mere expectancy as distinguished from a conditional
interest is not a subject of property.
‘Property’ also signifies a beneficial right in or to a thing. Sometimes
the term is used as equivalent to ownership; as where we speak of the right
of property as opposed to the right of possession (q.v.), or where we speak
of the property in the goods of a deceased person being vested in his
executor The terms was chiefly used in this sense with reference to
chattels (Finch, Law
Property in this sense is divided into general and special or qualified,
General property is that which every absolute owner has (Co. Litt 145b.),
Se OWNERSHIP
Special property has two meanings. First, it may mean that the subject-
matter is incapable of being in the absolute ownership of any person, Thus
a man may have a property is deer in a park, hares or rabbits in a warren,
fish in a pond, etc.; but it is only a special or qualified property, for
if at any time they regain their natural liberty his property instantly
ceases, unless they have animus revertndi (2 Bl. Comm 391). See ANIMALS
FERAE NATURAE.”
This definition also shows that the expression signifies “things and
rights considered as having a money value”, Even incorporeal rights like
trade marks copyright ,patents and rights in personam capable of transfer
or transmission . such as debts, are also included in its ambit. The
meaning
given to “general property” and “special property” are self-explanatory and
need no emphasis at out hands. it is worth recalling that movable property
means “property of every description except immovable property the
definition in all the General Clauses Acts.
21.The above material uniformly emphasises the expansive manner in which
the expression property” is understood. Learned counsel for the
petitioners brought to our, notice the meanings of the term property” set
out in Chapter-13, “The Law of Property”, in Salmond’s Jorisprudence (12th
Edition, 1966) In this chapter, several meanings attributed to “property”
are discussed in extenso ; to all of which it may not be necessary to
refer, Suffice to say that property is defined to include material things
and immaterial things (jura in re propria) and leases; servitudes and
securities etc ( jura in -re aliena). The material things are said to
comprise land and chattels while immaterial things include patents,
copyrights and trade marks, which along with leases, servitudes and
securities are described as incorporeal property The expression “movable
property” is stated to include (Page 421) corporeal as well as incorporeal
property, Debts, contracts and other chose-in-action are said to be
chattels, no less than furniture or stock-in-trade, Similarly, patents,
copyrights and other rights in rem which are not rights over Iand are also
included within the meaning of movable property; We are unable to see
anything in the said Chapter-13, Which militates against the meanings
ascribed to the said expression in the judicial dictionaries referred have
above., Indeed, they are Consistent With each other.
22; Learned counsel-for the petitioners have brought to our notice the
several meanings of the expression “licence” in various law dictionaries.
But, as those very dictionaries make it clear the expression has several
meanings.- and one has to choose the appropriate one depending upon the
context. We do not think it necessary to refer to the material cited by the
learned counsel for the reason that the character, nature and content of
the licences in question should be ascertained with reference to the law
governing them and not with reference to the general meaning of the
expression “licence”, We have already referred to the provisions of the
“Export and Import Policy” governing these licences, We may now refer to a
few more paragraphs from the “Import ;and Export Policy 1990-93, relevant
to the R.E.P. Licences/Exim Scrips.
23. Para 184(1), which deals; with ^Extent of Import Replenishment” says’
“the extent of replenishment permissible against export products (other
than Gem and Jewellery) enumerated in Column 2 of Appendix 17 Part I of
this book shall be that set out in Column 3”
Para 185(1), Which deals with “Items permissible for Import, says, “REP
Licences -issued against export of products listed in Column 2 of Appendix
17 Part I and against para 184(4) of this book, will be Valid for import of
those relevant items of raw material components, consumables and packing
Materials, as are listed in Appendiees 3 and 5 Part-A and related to the
product exported.”
Para 192 deals with “Flexibility in the utilisation of REP Licence. It says
that the said licences are also valid for import of any other items of raw
materials, components, tools, consumables and packing materials listed in
Appendiees 3 and 5 Part A’ besides some other goods.
Para 199 deals with “transferability of REP licences” It reads;
“199(1). the REP licence will be issued in the name of the registered
exporter only and will not be subject to “Actual User Conditions.” “A
licence holder may transfer the licence to another person. The licence
holder or such transferee may import the goods permitted there in.
(2) The transfer of a REP licence will not require any endorsement or
permission from the licensing authority, i.e., it will be governed by the
ordinary law. Accordingly, clearance of the; goods covered by a REP licence
issued under this policy will be allowed by the Customs authorities on
production by the transferee of only the document of transfer of the
licence concerned in his name. When-ever a REP licence is transferred the
transferor should give a formal letter to the transferee, giving full
particulars regarding number, date and address of the transferee, and
complete description of the items of import for which the licence is
transferred”As mentioned here in before, the relevant feature of Exim Scrip
are identical.
24. The Above provisions do establish that R.E P. licences have their own
value. They are bought and sold as such. The original licence 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 other
words, these licences/’Exim Scrips have an inherent 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 chose-in-
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 property – and it is for
this reason that it is freely bought and sold in the market For all
purposes and 8 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 cannot do
otherwise. (With effect from March l, 1992, of course, the very policy and
system under Which these licences/scrips were being issued, has been
discontinued.)
25 Since Karnataka and Madras High Courts have placed strong reliance upon
the decision of this Court in Anraj, it Would be appropriate to refer to
the relevant facts and the ratio of the said decision The question in that
case was whether lottery tickets ate “goods” within the meaning of and as
defined in the Tamil Nadu general Sales Tax Act and Bengal Finance (Sales
Tax) Act, 1941. The contention of the State was that they were goods and,
therefore, attract the sales tax on their sale. According to assessees, the
lottery tickets were in the nature of actionable claims but not goods. They
questioned the legislative competence of the State Legislatures to levy
sales tax on their sale. They contended that the expression “sale of goods”
has to be construed in the sense in which it is used in the Sale of Goods
Act, as has been held by this Court in Gannon Dunkerley. They submitted
that the definition of “goods” in Sale of Goods Act excludes from
its purview actionable claims and that the essence of the lottery being
merely a chance for a prize for a price, it does not constitute goods but a
mere actionable claim. It was argued that the lottery ticket is a mere slip
of paper or a memorandum evidencing the right of the holder thereof to
claim or receive a prize if successful in the draw.
25-A. The arguments of the assessees were rejected by this Court. The Court
referred to the definition of “goods” and “sale” in both the aforesaid
enactments, the definition of “goods” in Article 366(12) and the definition
of “tax on the sale or purchase of goods” in Article 366(29A). It referred
to the meaning of the expression “lottery ticket in law dictionaries and
decided cases ;it referred to the definition of ”movable property” in the
General Clauses Act, .1897 and the definition of the expression ‘actionable
claims” in Section 3 of the Transfer of Property Act and observed
(Tulzapurkar , J., speaking for the Bench comprising himself and Sabyasachi
Mukherji, J.).
“If incorporeal right like copyright or an intangible thing like electric
energy can be regarded as goods eligible to sales tax there is no reason
why the entitlement to right to a participate in a draw which is
beneficial interest in movable property of incorporeal or intangible
character should not be regarded as goods for the purpose ;of levying-sales
tax. As stated above lottery tickets which comprise such entitlement do
constitute a stock-in-trade of every dealer and therefore is merchandise
which can be bought and sold ‘in the market Lottery tickets comprising such
entitlement, therefore, would fall within the definition. of goods given in
the Tamil Nadu Act and the Bengal Act.
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 within 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 there of a transfer of property in the goods is
involved”‘
With respect to the nature and content of the lottery: ticket, the learned
Judge observed that it confers upon the holder thereof “the right to
participate (in the draw) and: the right to claim a prize if
successful…..In other words lottery tickets not as physical articles but
as slips of paper or memoranda evidencing the right to participate in the
draw must in a sense be regarded as the dealer’s merchandise and, there
fore goods capable of being bought or sold in the market. They: can also
change from hand to hand as goods.”
We are of the opinion that .the ratio of the said decision fully supports
the contention of the States here in As rightly pointed out by the
Karnataka. High Court the content of R.E.P. 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, We see no
substance in the argument based upon the decision in Gannon Dunkerley. On
the basis of this decision, it is contended that the expression “goods” and
“sale of food” must be Under stood in the sense they are used in the Sale
of Goods Act. We need not quarrel with this proposition. We have not only
referred herein before the definition of “goods” and “property” in the Sale
of Goods Act but have also pointed out that in material particulars it is
similar to the definition of “goods” in Tamil Nadu, Karnataka and Kerala
Sales Tax Acts, All of them uniformly say “goods” mean “every kind of
movable property” (Sale of Goods Act) and “all kinds of movable property”
(Tamil Nadu, Karnataka and Kerala Acts). As a matter of fact, this
submission was made but not pursued by any of the counsel for the
petitioners.
26. 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 Act in the following Words
‘”Actionable claim means 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 construc-tive of the claimant, which the Civil
Courts recognise as affording grounds for relief, whether such debt or
beneficial interest be existent accruing, conditional or contingent”
When these licences/scrips are being bought and sold freely in the market
as goods and when then 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. Indeed, in Anraj, the main contention of
the petitioners was that a lottery ticket was in the nature of an
actionable claim. The said argument was rejected after an elaborate
discussion of law on the subject, We agree with the said decision and on
that basis hold that the R.E.P. Licences/Exim Scrips are not in the nature
of actionable claims.
Learned counsel for the petitioners submitted that the licence is something
less than property, because the licencing authority can always cancel .it,
in which event, it becomes a mere scrap of paper. That feature, in our
opinion, has no relevance on the question at issue ,Cancellation can be
effected by the appropriate authority in accordance with the :procedure
prescribed by law and on proof of permissible grounds. We are unable to see
how the said factor detracts from the inherent value of these licences. Far
that matter, many a grant is subject to such a condition That circumstance
is in no way affects the content of the grant. The further contention that
the licence/Scrip merely gives of right to import certain goods, that in
Case; the licence is lost, one can always obtain a copy from the authority
and, there fore, the licence has-no value of its own is .equally
unacceptable We have already pointed out how the commercial world treats
these licences and trades in them. They represent merchandise for all
practical purposes.
27. Learned counsel for petitioners have brought to our notice certain
decisions, to which a reference would be in order :
The decision on which strong reliance is placed. by Sri. K.K. Venugopal is
In State of Orissa & ors v. Titaglmr Paper Mills company Limited & anr
,[1985] suoppl.S.C.C.280 It was a case a rising under the orissa Sales Tax
Act. under Section, 3-B of the orissa Act, the. State Government was
empowered to declare from time to time by notification any goods or class
of goods to be liable to tax on turn-over of purchases Notification were
issued under this provision from time to time declaring: that standing
trees and bamboos agreed to be severed shall be liable to tax on turn-over
of purchases at the rate prescribed. The contention of the assessee was
that the said levy was not a tax on sale or purchase of goods within the
meaning of Entry 54 in List-II and therefore, beyond the legislative
competence of the State Legislature construing the relevant notifications
and contracts, (called Bamboo contracts and Timber con-tracts) this court
held that the Bamboo contracts were in the nature of a grant of interest in
immovable property .and, then fore, beyond the purview of the Act. so far
as Timber contracts are concerned; the Court held that inasmuch as .the
property in the. trees, which were the subject-matter of the contracts
passed to. the forest contractor only in the felled trees, i. c. in timber
after all-the condition of the contract has been complied with and after
such timber- was examined and checked and removed from contract area, they
too were not governed by the Notifications concerned there in On the basis:
of this decision it was contended by Sri Venugopal that taxable. event. if
at all, will arise-Only at. the time of transfer of the actual goods
imported under and by virtue of the said licence/scrips but not at the time
of transfer of documents. we .are unable. to agree we are unable to see how
the above holding helps the petitioners herein, more particular-ly, in view
of our finding that these licences/scrips have value of their own, are
freely transferable and are openly treated in the market and on stock
exchanges.
28. Sri Vaidyananthan relied upon a decision of the Patna High Court in
State of Bihar v. Rameshwar Jute Mills, AIR (1953) Patna 236 where the sale
of loom hours was held not to be a sale of goods, It was held by the Court
that the expression “goods” in Section 2(d) of the Bihar Sales Tax Act
cannot be given a wider connotation which is given to that term in the Sale
of Goods Act or for that matter the wider connotation given to “movable
property” in the General clauses Act. It was held that having regard to the
definition in that Act, the expression “goods” refers only to tangible
goods or tangible movable property and not to any kind of intangible right
like loom hours, actionable claims, stocks, shares or securities. We are
afraid, we cannot agree with the said reasoning which appears to be
contrary to the one affirmed by this Court in Anraj.
29. Reliance was then placed upon the dissenting opinion of: Mud-holker, J.
in Joint Chief Controller of Imports and Exports v. Aminchand Mutha, (1966)
l S.C. 262 to contend that transfer of a right to quota is not sale of
goods. The observations relied upon are to the effect that the Import
Export policy issued by the Government of India “would not confer a legal
right upon an exporter for the division of the quota rights of a dissolved
firm;” firstly, the majority opinion (Gajendragadkar, CJ, Wanchoo, Shah and
Sikri, JJ.) is to the contrary. Secondly, quota rights considered therein
were not freely transferable like the licences/scrips concerned herein. The
last mentioned comment holds good for the other decision relied upon 5.
Chandra Sekharan & 0m v. Government of Tamil Nadu : & Ors., [1974] 3 S.C.C.
196. This decision deals with the transferability of a
Licence/authorisation in respect of a ration, shop.
30, Sri K.K.Venogopal placed strong reliance upon the decision of the Court
of Appeal in Frank Warr & Co. v. London County Council,(1904) 1 K.B. 713.
In particular, the Learned counsel relied upon the observations of Romer
LJ. at Pages 720 to 722, It was a case: there a contract was entered into
between lessees of a theatre and the plaintiffs; Under this contract, the
plaintiffs were given the exclusive right for a particular period to supply
refreshments in the theatre. For that purpose, the plaintiffs were
entitled to use the refreshment rooms, bars and wine cellars in the theatre
and were also given the exclusive right to advertise and to let spaces f of
Advertisement ia certain parts of the theatre, It was held by the Court of
Appeal that the said contract did not convey to the plaintiffs: an interest
in the land which could form the subject- matter of compensation under the
Land. .Clauses Consolidation Act, 1845.in that connection, Romer L.J. held.
that the contract created only a licence in favour of the plaintiffs, but
did not create any estate: Of interest in land in their favour. It was also
held. that the right given to the plaintiffs to use refreshment: rooms and
bars etc. Was to enable the plaintiffs to supply refreshments at
appropriate times and did not involve absolute parting: of possession of
those parts of the theatre by the lessees to the plaintiffs. Referring to
the earlier decision in Thomas v. Sorrell [1674) Vaugh. 351), the learned
Judge held, “a dispensation or licence property passed no interest, nor
alters or transfers property in anything, but only makes an action lawful
which without it had been unlawful,” It is evident, the decision dealt with
the question whether the: interest created in the plaintiffs under the
aforesaid contract was a lease or a licence. In was held that it was only
the latter. With respect, we are unable to see how tie said observations
are of any assistance to the appellants/petitioners herein.
31. Sri Ganguly, learned counsel for the State of Tamil Nadu relied upon
the dissenting opinion of S.R. Das. J. in Chiranjitlal Chowdhary v. Union
of India, [1950] S.C.R. 869) at pages 920 to 922) where the learned Judge
dealt with the meaning Of the expression “property” in Article 19(l)(f) and
Article 31 of the Constitution. Haying regard to the context in which the
said question; had arisen, we do not think it necessary to refer to the
observation relied upon since: the material referred to by us on the
meaning of the expression ”movable property” .and the decision in Anraj.
is more to the point;
32. In the written submissions filed by Sri K.V. Mohan, a new contention,
not urged at the bar, is raised, viz., that R.E.P licences/’Exim Scrips are
incentives granted by the Union of India as concessions from customs duty
and that this a matter which comes within the exclusive competence of the
Union Legislature under Entry 41 in List- 1 of Seventh Schedule to the
Constitution of India and that, therefore, the State Legislature. has no
power to levy sales tax: upon their sale/purchase, We are Unable to see any
:substance in this submission either. Applying the rule of pith and
substance, it must be held that the enactments in question are referable to
Entry 54 in List-II and :not to Entry 41 in List-L By no stretch of
imagination can they be related to entry 41 in List-I. The State
Legislatures are not seeking to: make a law with respect to customs duties.
They are seeking only to levy tax upon. the sale of goods. The test to be.
applied in this behalf has been authoritatively stated by the Constitution
Bench of this Court in A.S. Krishnan v. State of Madras, [1957] S.C.R. 399.
33. Another contention raised in the Written submissions of Sri K.V. Mohan
is that even if the said licences/scrips are treated as goods, the tax must
be levied at the first point of sale, viz ,, upon the authority issuing the
licence. We cannot agree. The grant of licence by the licencing authority
to the registered exporter is not a sale. The sale is when the registered
exporter or the purchaser Sells it to another person for consideration.
34. The last submission urged by Sri Vaidyanathan is that these
licenees/scrips constitute: securities within the meaning of Clause (h) of
Section 2 of the Securities Contracts (Regulation) Act, 1956, and
therefore,stand excluded from the definition of “goods” contained in Tamil
Nadu, Kerala and Karnataka Sales Tax Acts as well as central Sales Tax Act.
The contention is misconcived.lt is true that the definition of “goods” in
the said Sales tax enactments does exclude securities, but the question is
whether these licences/scrips are securities. They are not. Before the
definition of the expression “securities” in Clause (h) of Section 2 of the
Securities contracts (Regulation) Act was amended by Act 15 of 1992,the
definition reads thus :
“(h) ‘securities’ include –
(i) shares, scrip’s , stocks, bonds, debentures, debenture stock or other
marketable securities of a like nature in or :of any incorporated company
or other body corporate;
(ii) Government securities;
(iii) rights or interests in securities”
By the said amendment Act sub- clause (iia) was added in the said
definition, which reads :
“(iia) ;such other instruments as may be declared by the Central
Government to be securities;”
Firstly, it is not brought to our notice that any declaration has been made
by the Central Government to the effect that these licence/scrips are
securities. Secondly, any such declaration can only be for the period
subsequent to the coming into force of the said Amendment Act. i.e.,
subsequent to January 30, 1992. All the cases before us pertain to the
period earlier to the Said date. In this view of the matter, it is not
necessary to pursue this argument further.
For the above reasons, all the appeals and writ petitions fail and are
dismissed herewith. No costs.