Background:

In H. Anraj v. Government of Tamil Nadu, the constitutional validity of Tamil Nadu’s sales tax on lottery tickets was challenged. The State exempted its own lottery tickets from sales tax but taxed tickets from other states, leading to claims of discrimination against inter-state trade. The key issues before the Supreme Court were whether lottery tickets qualify as “goods” under Entry 54 of List II (State List) of the Seventh Schedule, and whether Tamil Nadu’s levy of sales tax on such tickets violated constitutional protections on free trade and commerce between states.

Issues:

1. Whether lottery tickets constitute “goods” under Entry 54 of List II of the Seventh Schedule of the Constitution, thereby allowing the State of Tamil Nadu to impose sales tax on their sale?

2. whether the State’s exemption of its own lottery tickets from tax, while taxing those from other States, violated the constitutional provisions on freedom of trade and non-discrimination?

Observations:

The Court made the following observations:

• 1. Lottery tickets include the right to participate in the draw, which is an intangible movable property and thus qualify as “goods” under Entry 54 of List II.
• 2. Sale of lottery tickets involves transfer of this intangible interest, which amounts to a sale of goods for tax purposes.
• 3. State legislatures have the power to levy sales tax on lottery tickets under Entry 54 of the Seventh Schedule.
• 4. The Tamil Nadu notification exempting local lottery tickets but taxing others was discriminatory and violated Articles 301 and 304(a) of the Constitution.
• 5. Sales tax laws must ensure non-discrimination in inter-State trade and commerce; taxing tickets from other States but exempting local ones is unconstitutional.

Decision:

The Supreme Court upheld the State’s power to levy sales tax on lottery tickets, recognizing them as “goods” under Entry 54 of List II of the Seventh Schedule.

• • However, the Court struck down the Tamil Nadu government’s exemption notification that exempted local lottery tickets from sales tax while taxing tickets from other States, declaring it unconstitutional discrimination violating Articles 301 and 304(a).
• • Consequently, the levy of sales tax was valid, but the discriminatory exemption was invalidated.

Why this case matters?

This judgment is a landmark decision because it established that lottery tickets, including the intangible right to participate in the draw, qualify as “goods” under the sales tax laws, thereby affirming the State’s power to levy sales tax on their sale. The decision also reinforced the constitutional guarantee of freedom of trade by striking down the Tamil Nadu government’s discriminatory exemption that favoured its own lottery tickets while taxing those from other States. This ruling ensured that tax laws must not discriminate against inter-State commerce, setting an important precedent on the taxation of intangible movable property and shaping the regulatory and tax policies related to lotteries in India.