JUDGMENT [ENTITY], J.
1. Retail agents appointed by the Company for sale of online lottery tickets would fall within the definition of "dealer" under [SECTION] of the [ACT] and therefore liable to take registration under [SECTION] of the Act, is the question that has come up for consideration in these cases.
2. Petitioners are engaged in the sale of online lottery tickets in the State of Kerala for and on behalf of M/s. Pan India Net Work Infravest Pvt. Ltd., the appellant in [CASE NUMBER]. Petitioners submit they are only rendering services to the Company and therefore are not dealers under the [ACT] and therefore not liable to take registration under the Act. Assessing Authority took the view that the petitioners are authorised dealers of online lottery and are bound to take registration under the Act since their turnover exceeded the registerable minimum as specified in [SECTION] of the Act. On enquiry and on the basis of the materials gathered from Pan India Net Work Infravest Pvt. Ltd., Assessing Authority noticed that the assessees' turnover for sale of online lottery tickets attracted tax liability under [SECTION] of the Act and proposed to tax at the rate of 8% under [SECTION] to the [ACT].
3. M/s. Pan India Net Work Infravest Pvt. Ltd. (hereinafter called "the Company") along with the assessees had approached this Court by filing [CASE NUMBER] contending that the assessees are not dealers under [SECTION] of the Act and that the Company alone is the dealer liable to take registration and pay licence fee as provided under [SECTION] of the Act and that the retail outlets manned by the assessees are only additional places of business of the Company. Learned Single Judge of this Court disposed of the Writ Petition with direction to the Commissioner, Commercial Taxes to pass orders under [SECTION] of the Act for clarifying the various issues raised by the Company and the assessees.
4. Commissioner of Commercial Taxes issued notices to all the aggrieved persons and examined their contentions. Commissioner came to the conclusion that the assessees are the retailers appointed by the Company and are to be treated as dealers under the Act. Commissioner also came to the conclusion that the relationship between the Company and the retailers is that of Principal and Agent and they fall within the expression "commission agent" under [SECTION] of the Act. Commissioner rejected the contention of the company that retail outlets are to be regarded as places of business of the Company. Commissioner also came to the conclusion that the rate per draw stipulated in [SECTION] is optional and is in lieu of the tax due under [SECTION] and the dealers in lotteries have therefore an option to pay tax under [SECTION] if they so desire. Commissioner also rejected the contention of the Company that [SECTION] envisages payment of only one set of licence fees on any draw. Commissioner took the view that for each draw, different dealers will be selling lottery tickets to different sets of customers and therefore each dealer is liable to tax under [SECTION] of the Act on his sales turnover. It was also clarified that dealers may opt to pay tax on their turnover under [SECTION] of the Act or alternatively pay licence fee in lieu of tax under [SECTION].
5. Company and the retail agents are aggrieved by the clarification. Company filed [CASE NUMBER] under [SECTION] of the [ACT] and the retailers have filed various Writ Petitions claiming identical reliefs.
6. We heard Senior Counsel Sri. [ENTITY] and Sri.[ENTITY], appearing for the Company and the retail agents. Counsel submitted that the Commissioner has committed an error in holding that the Company as well as the dealers would come within the definition of "dealer" under [SECTION] of the Act. Counsel explained the nature of the business and the working of the online lottery system. Counsel submitted that in the online lottery system there is a centrally located server which is connected to terminals all over and even in remote areas by wireless through satellite and that controls the entire system. Counsel submitted that the terminals merely obey the commands of the server. [ENTITY] has absolutely no control over the printing of the ticket but merely acts as a printer-on-command. Sale therefore takes place only once and under the full control of the Central Server by the State and payment is received on behalf of the Company by its representatives manning the terminal at the retail counters. Counsel submitted that in this system the entire stock is in electronic form, several transfers can take place in that form alone and that retail outlet has no stock-in-trade and that the retailers are not selling any goods.
7. Counsel further submitted that the relationship between the company and the retailer is that of master and servant and they cannot be treated as commission agents, del credere agents or mercantile agents. Counsel also took us through the meaning of those expressions with the help of the Black's Law Dictionary. Counsel also referred to the agreement laying down various terms and conditions between the Company and the retailer. Counsel also submitted that the retail outlets are only additional places of business of Company within the meaning of [SECTION] of the Act. To establish the above contentions, Counsel placed reliance on the decisions of the Apex Court in [PRECEDENT], [PRECEDENT] and [PRECEDENT] etc. Counsel also submitted that discriminatory treatment has been meted out to the Company and the retailers, while they are being taxed, no sales tax or licence fee is being demanded or collected on the sale of lottery tickets by the Department of Lotteries, State of Kerala. Counsel referred to the decision of the Apex Court in H. Anuraj v. Government of Tamil Nadu 1986) 1 SCC 414) Counsel also took us through the various terms and conditions of the agreement and contended that the relationship between the retailer and the Company is that of an agent and principal.
8. We are of the view, in order to examine the question as to whether the assessees are dealers or not under the Act, terms and conditions by which they are appointed are of prime importance. Copy of the retailer agreement has been produced before us.
9. The Company is admittedly a dealer and has already got registration under the Act. The question therefore to be considered is whether the retailers/dealers would also fall within the definition of "dealer" under [SECTION] of the Act.
The said provision is extracted below for easy reference of the Act.
(viii) "Dealer" means any person who carries on the business of buying, selling, supplying or distributing goods, executing works, transferring the right to use any goods or supplying by way of or as part of any service, any goods, directly or otherwise, whether for cash or for deferred payment, or for commission, remuneration or other valuable consideration and includes:
(a) (b) a casual trader;
(c) a commission agent, a broker or a del credere agent or an auctioneer or any other mercantile agent, by whatever name called, "who carries on the business of buying, selling, supplying or distributing goods (executing works contract, transferring right to use any goods or supplying by way of or as part of any service, any goods) on behalf of any principal;
Definition clause refers to any person who carries on the business of buying, selling, supplying or distributing goods and is widely couched. Clause 1.2 of the retail agreement which is very relevant is extracted below.
1.2. The Company is desirous of establishing a network of retail agents for the sale of the computerised network lottery tickets and for that purpose has framed criteria for the selection of retail agents and appointed as its Distributor for assistance in the establishing of the retail agent net work.
Evidently, above-mentioned clause would indicate that network of retail agents are selected and appointed for the sale of the computerised network lottery tickets. Clause 1.3 states that the retailer has applied to the Company for its appointment as a retail agent for the sale of computerised network lottery tickets. Clause 1.4 also would indicate that retail agents are appointed to sell computerised lottery tickets. Clause 9.5 stipulates that the retailer shall sell the lottery tickets at its authorised price and not at a price discounted or higher than that fixed by the company. Clause 3.3 stipulates that retailer shall pay to the company refundable security deposit of Rs. 2,50,000/-. Clause 3.4 states that retailer shall also pay to the company as security advance against lottery ticket a sum of Rs. 1,00,000/- four weeks prior to the commencement of the commercial operation of the lottery. Clause 3.5 stipulates that the retailer shall pay to the company at the time of installation equipment, both one time security deposit for installation of equipment and the advance against lottery sales, being the total amount of Rs. 3,50,000/-. Clause 3.6 stipulates that the security deposits made by the retailer for installation of equipment and advance lottery ticket sales shall earn an interest rate of 8.5% till 31.3.2003 and so on. Over and above retailer will also be given the sales commission. Clause 5.1 reveals that in consideration of the services rendered under the agreement, the Company shall pay to the retailer five per cent commission on the net lottery tickets sales, through the retail outlet of the retailer every month. Such commission payable would be subject to all statutory deductions as per law applicable in India. There is also a provision for installation, maintenance and security of equipment. Clause 9 deals with lottery ticket sales. Clause 10.2 states that if at any time during the term of the agreement the retailer is unable to exercise its best efforts in advertising, promoting and selling lottery tickets, or if the company, concludes for any reason that the retailer is not exercising, or is presently unable to exercise its best efforts in advertising, promoting and selling lottery tickets, then the Company may in its sole discretion terminate this agreement immediately upon written notice to the retailer. Payments and accounts is dealt with in Clause 12. Clause 16 deals with intellectual property. On going through the entire terms and conditions of the agreement, we are not prepared to say that the relationship between the Company and the retailer is that of master and servant. Retailers appointed by the Company conduct the sale of online lottery in terms of the agreement and receive commission in respect of sales of lottery tickets and also additional commission on the prize winning tickets sold by them. In our view, the relationship between the Company and the retail agents is akin to that of a commission agent within the meaning of [SECTION] of the [ACT].
10. We will now examine the contention raised that the retailers are only acting as servants of the Company and no sale is effected from the retail outlets since there is no stock-in-trade. We are not prepared to say that there is no sale of ticket at the retail outlets. Customers go to retail outlets and purchase lottery tickets and they are not concerned with the arrangement between the principal and the retail outlets; nor are they concerned with the installation of terminals at the retail outlets with a central server connected to the satellite or other technology or use of the software. So far as the customers are concerned, they purchase tickets from the retail outlets after effecting payment. Method of accounting the receipt of the price of the tickets or the source of the origin of the lottery tickets are not the concern of the customer. Sale is effected at the retail outlet itself. We may in this connection refer to the recent decision of the Apex Court in [PRECEDENT] wherein the question arose as to whether the sale of canned softwares, that is CD. rom containing software programme is a sale of "goods" within the meaning of the term as defined in the [ACT]. The Court held that the custom made softwares are capable of abstraction, consumption and use and can be transmitted, transferred and delivered, stored, possessed etc. and are goods as defined in [SECTION] of the [ACT]. The Court quoted with approval the following observation in [PRECEDENT].
"Computer programs are the product of an intellectual process, but once implanted in a medium they are widely distributed to computer owners. An analogy can be drawn to a compact disc recording of an orchestral rendition. The music is produced by the artistry of musicians and in itself is not a good, but when transferred to a laser-readable disc it becomes a readily merchantable commodity. Similarly, when a professor delivers a lecture, it is not a good, but when transcribed as a book, it becomes a good.
That a computer program may be copyrightable as intellectual property does not alter the fact that once in the form of a floppy disc or other medium, the program is tangible, moveable and available in the market place. The fact that some programs may be tailored for specific purposes need not alter their status as 'goods' because the Code definition includes 'specially manufactured goods'."
[ACT] Bench of the Apex Court in State of U.P. v. N.T.P.C. Ltd. 2002) 5 SCC 203) held that the definition of 'goods' in [SECTION] of the [ACT] is very wide and held that "electricity" is good within the meaning of the [ACT] and noted that electrical energy could be transmitted, transferred, delivered, stored and possessed in the same way as a movable property. Same logic can be adopted in the sale of online lottery tickets also. In H. Anuraj v. State of Tamil Nadu 1986) 1 SCC 414) the Apex Court held, in the context of [ACT] that the lottery tickets are an actionable claim as the essence of a lottery is a chance for a prize for a price. The Apex Court held that incorporeal rights, like copyright or an intangible thing like electric energy, are regarded as goods exigible to sales tax and, therefore, entitlement to a right to participate in a draw, which is beneficial interest in movable property, would fall within the definition of 'goods'. Sales tax is leviable if sale is effected by the retail agent who is manning the retail outlet. The retailers are selling online lottery tickets which is intangible and once turnover exceeds assessable minimum assesses is bound to take registration under the Act and pay tax on the taxable turnover. We are therefore unable to agree with the reasoning of the learned Single Judge in [CASE NUMBER] that since dealer outlets are synchronized to a common system and common draws are conducted and tax for all draws are paid under [SECTION] by the Company, there may not be any scope for separate assessment on agents. In our view, transaction of the retailer dealer in respect of the goods in question qualifies all the requirements of a sale of goods which would attract tax liability under [SECTION] of the Act with an option to pay licence fee in lieu of tax.
11. The dealer in lottery has also an option to pay sales tax under [SECTION] of the Act or alternatively pay licence fee in lieu of tax under [SECTION]. [SECTION] reads as follows:
5BA. Levy of licence fee on lottery tickets.- Any dealer liable to pay tax under [SECTION] shall pay licence fee per draw at the following rates, in lieu of the tax payable under that section.
1. Daily Lotteries: Rs. 10,000/-per draw.
2. Weekly Lotteries: Rs. 20,000/-per draw.
3. Bi-weekly Lotteries: Rs. 25,000/- per draw.
4. Monthly Lotteries: Rs. 50,000/- per draw.
5. Bumper, Super/Festival Bumper Lotteries: Rs. 1,00,000/-per draw.
6. Mega Bumper Lotteries: Rs. 3,00,000/-per draw.
[SECTION] has been inserted by [ACT] with effect from 23.7.2001 which now gives compounding facilities to the dealers. Compound rate can be demanded if opted, or they will be subjected to the normal procedure of assessment. Sales tax is levied in the sale of lottery tickets not on draw of lotteries. Each of the retail dealers sells lottery tickets. There are more than 900 retail outlets in Kerala. Sale takes place in each of such outlets. Each dealer in our view has independent, separate and distinct tax liability and therefore registration by the Company alone under the Act would not absolve liability of the retail dealers, since they effect sales through their retail outlets.
12. We are also not prepared to accept the contention of the Company and the assessees that retail outlets are additional places of business within the meaning of [SECTION] of the [ACT]. Terms and conditions of the agreement would show that they are independent places of business of the retailers. Place of business is to be selected by the retailer and the retail agent has to carry out advertisement and to attract customers. They have to pay rent of the premises occupied by them. Retail agents have to employ their own employees. Retailers are separate entities and are self-governing with rights and responsibilities and therefore the retail outlets cannot be regarded as branches or additional places of business of the Company.
13. We are not impressed by the argument of the Counsel that since no tax is being collected from the lotteries conducted by the State Government petitioners be also relieved of the obligation of paying tax. Learned Special Government Pleader (Taxes) has stated that the Department of Lotteries is not exempted and tax is being collected. In any view, that would not absolve the retailers of their tax liability. We have already found that retailers are independent and separate entities and the mere fact that the outlets have been synchronized to a common system would not absolve the liability of retail outlets since sales take place at the outlets.
14. In such circumstances we find no illegality in the clarifications given by the Commissioner. Since we have already found that retail agents are dealers under the [ACT], they are liable to pay tax on the sale of lottery tickets which would attract tax liability under [SECTION] of the Act. M.F.A. and the Writ Petitions are disposed of accordingly. [CASE NUMBER] would stand allowed and the judgment in [CASE NUMBER] would stand set aside.