The architecture of the Goods and Services Tax (GST) is predicated on a clear and fundamental principle: taxation is levied upon the supply of either goods or services. This binary classification is intended to encompass the universe of commercial transactions. However, within this framework lies a significant doctrinal anomaly concerning the treatment of “actionable claims.” While the law generally recognises that an actionable claim is neither a good nor a service, it carves out a specific list—lottery, betting, casinos, horse racing, and online money gaming—and mandates that these particular claims be treated and taxed as “goods.” This paper posits that this exception is not only inconsistent but also conceptually unnecessary. Our central thesis is that we tax what is supplied, not what is hoped for. An actionable claim is not a primary supply but a consequential right (hope) that arises from an underlying supply of goods or services. The GST framework is already fully equipped to tax this primary supply, making the artificial re-classification of the resulting actionable claim a redundant and logically flawed exercise.
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Principle of Underlying Supply: Actionable Claims in a Non-Contentious Context
Before analysing the contentious categories, it is crucial to establish how the principle of an “underlying supply” functions correctly and consistently across various other commercial transactions. In these standard parallels, the law rightly identifies and taxes the primary supply, treating the subsequent actionable claim as an untaxed consequence. This demonstrates a coherent and established legal logic that the specified exceptions appear to violate.
1. Insurance Policies: An insurance policy represents a quintessential example of this principle. The policyholder pays a premium, which is the consideration for a service—the service of financial assurance and risk coverage provided by the insurer. This transaction creates a contingent actionable claim—the right to claim indemnity only upon the occurrence of a contingent event (an accident, illness, or loss). Does the GST law disregard the service component and deem the entire policy a “supply of goods” because an actionable claim is involved? Of course not. The GST is correctly levied on the premium, which is the payment for the underlying service. The law does not attempt to separately value and tax the contingent “right to claim” as a good. The actionable claim is rightly seen as an inseparable outcome of the taxed service. This is the correct application of the principle.
2. Loyalty Programs: When a consumer purchases goods (e.g., electronics) or services (e.g., an airline ticket) and receives loyalty points under the loyalty program, the transaction follows the same logic. The underlying supply is the sale of the television or the provision of the travel service, and GST is paid on the full value of this supply. The loyalty points are a form of actionable claim—a right to claim a future discount or product. These points are not treated as “goods” supplied to the customer at the time of issuance. They are a consequence of the primary, taxed transaction. This is the correct application of the principle.
3. Extended Warranties on Goods: When a consumer purchases a new car or an electronic appliance, they are often offered the option to buy an “extended warranty.” The consumer pays an upfront fee. What is being supplied? It is a service of assurance against potential defects for a prolonged period. This transaction directly creates a contingent actionable claim: the right to demand repair or replacement if the product fails during the extended term. The GST is correctly levied on the fee paid for the warranty as a consideration for a service. The law makes no attempt to dissect this transaction and tax the “right to claim” as a separate “good.” It rightly identifies that the money was paid for the underlying service of protection, and the actionable claim is an inseparable, untaxed feature of that service.
4. Target-Based Vouchers and Promotional Coupons: The GST treatment of promotional vouchers provides a direct and compelling confirmation of our thesis. Consider a common commercial practice where a customer receives a voucher or coupon upon achieving a specific purchase target (e.g., “Receive a Rs. 500 coupon for every Rs. 5,000 spent”). This voucher is a classic actionable claim: a right to claim a future benefit against a subsequent purchase.
As clarified by the CBIC, such vouchers (when not qualifying as RBI-approved PPIs) are indeed treated as actionable claims. Consequently, their issuance is not a taxable supply of goods or services under Schedule III of the CGST Act. However, a critical question arises: Are these vouchers free? Commercially, they are not. Their cost and value are inherently factored into the pricing and margin of the underlying supplies—the Rs. 5,000 worth of goods and services that the customer had to purchase to earn the voucher.
The GST is correctly levied on the full value of these initial transactions. The law rightly “looks through” the issuance of the voucher and taxes the substantive economic activity that gave rise to it, not the hope of the voucher.
Question of Event vs. Outcome: Nature of Supply vs. Nature of the Desire
Having established that the law correctly focuses on the underlying supply in non-contentious cases, we now turn to the specified exceptions. The core error in their current tax treatment lies in a fundamental misidentification: the law mistakes the customer’s desire (the hope for a prize) for the operator’s supply (the performance of a service). A correct classification must be based on the latter, as it is the only element that constitutes a “supply” under GST. When we analyse what is factually and economically being supplied in each case, the character of a service becomes undeniable.
1. Casinos: The Supply of a Regulated Gaming Environment
A patron entering a casino is not purchasing a stack of “chances” in a vacuum. They are purchasing access to a highly organised service ecosystem. The operator supplies a complex bundle of services: access to a secure and regulated gaming facility, the use of professionally managed gaming tables (e.g., Blackjack, Roulette), the service of a croupier, regulatory compliance, and the overall ambience and entertainment experience. The patron is paying for the opportunity to play within this environment. The “desire to win” is the objective of the game, but the taxable supply is the comprehensive service of provision of this entire gaming experience. To isolate the “actionable claim” from the overwhelming service element is to ignore the entire economic reality of a casino’s business model.
2. Horse Racing: The Supply of Spectacle and Wagering Management
The transaction at a racecourse is multi-faceted, yet all its components are services. The primary supply is one of entertainment—the spectacle of the race itself. In parallel, when a bet (a “punt”) is placed, the operator supplies a crucial financial management service: accepting the wager, incorporating it into a pari-mutuel pool (or recording it against set odds), ensuring the integrity of the process, and managing the eventual payout. The bettor pays for their selection to be included and managed within this structured event. Is the racecourse supplying thousands of individual “goods” called “chances to win,” or is it supplying an entertainment service coupled with a financial management service for wagers? The desire is for their chosen horse to win, but the supply is the service of event management and wagering facilitation.
3. Online Money Gaming: The Supply of an Interactive Digital Experience
Online gaming platforms supply a sophisticated digital service. What is a user paying for when they enter a fantasy sports contest or a prediction game? They are not purchasing a static “chance.” They are paying for access to an interactive and dynamic service: the enjoyable activity of strategic team creation, the intellectual challenge of predicting real-world events, and the competitive thrill of playing against other users on a secure, managed server. The operator supplies the software, the interface, the data, and the community management. This is a quintessential supply of an interactive entertainment service. To reduce this entire engaging activity to the simple sale of a “good” is to ignore the substance of the transaction in favour of its potential outcome. The desire to win the prize pool is the objective of the game, but the supply being paid for is the service of playing the game itself.
4. Lotteries: The Supply of Participation in a Draw
Stripped to its essence, a lottery operator supplies a single, focused service: they organise, manage, and conduct a draw, guaranteeing that a participant’s number will be included for a chance to win. The payment for a ticket is the consideration for this specific administrative and organisational service. The desire is to hold the winning number, but the supply is the service of ensuring one’s participation in the event. The ticket is merely the token or proof of this service agreement.
In each of these cases, a clear and identifiable service is being performed by the supplier in exchange for consideration. The “actionable claim” is not what is supplied; it is the potential, contingent outcome of the service. Taxing the supply based on the customer’s motivation is a fundamental departure from the principles of a transactional tax, which must, by definition, be based on the nature of the supply itself.
This direct, service-based approach is not a novel interpretation; it finds strong support in the foundational principles laid out by the Supreme Court itself in the landmark case of H. Anraj v. Government of Tamil Nadu. In this judgment, the Court dissected a lottery ticket into its two constituent parts: (i) the right to participate in the draw, and (ii) the right to claim the prize, contingent upon winning. The Court held that the right to participate was a beneficial interest in movable property—a “chose in action”—and therefore a “good” capable of being sold under the then-prevailing sales tax laws. However, it is crucial to recognize the substance of what the Court identified as the “good”: it was the right of participation. This aligns perfectly with our Thesis 2. The Court was describing the very service we have identified—the service of being included in the draw. Under the modern GST regime, which distinguishes between goods and services with far greater clarity than the old sales tax laws, this “right to participate” is most accurately and logically classified as a service. The subsequent GST-era judgments, by focusing on the second, more contingent right (the right to win the prize) and labelling it the actionable claim/good, arguably misapplied the nuanced ratio of H. Anraj. The original judgment correctly identified the core of the transaction as the right to participate—a concept that fits seamlessly into the definition of a “service” today, rendering the need to classify it as a “good” obsolete.
Synthesising the Theses: Redundancy of “Actionable Claim as a Good” Fiction
The preceding sections have established two fundamental propositions. First, the GST framework, in its standard application, correctly identifies and taxes the underlying supply of goods or services, treating any consequential actionable claim as a non-taxable outcome (Thesis 1). Second, that in the specific cases of lottery, casinos, horse racing, and online gaming, the true and substantive supply being rendered is invariably a service of participation, entertainment, or management (Thesis 2).
When these two propositions are merged, a compelling and decisive conclusion emerges: the legal fiction of classifying specified actionable claims as “goods” is entirely redundant and unnecessary for the purpose of taxation.
The GST framework, in its original and logical design, is already perfectly equipped to tax the revenue generated from these activities. Let’s trace the correct, non-fictional pathway for taxation:
1.Identify the Transaction: A customer pays a fee to a lottery operator, a casino, a racecourse, or an online gaming platform.
2. Identify the Supply: As established in Thesis 2, the operator is supplying a service—be it the service of participation in a draw, access to a gaming environment, or use of an interactive digital platform.
3. Identify the Consideration: The fee paid by the customer is the consideration for this supply of service.
4. Apply the Levy: Under Section 9 of the CGST Act, GST is leviable on the value of this consideration paid for the supply of services.
This pathway is direct, consistent with the treatment of all other services that generate contingent rights (like insurance or extended warranties), and true to the economic reality of the transaction. It requires no special carve-outs, no re-characterizations, and no legal fictions. The revenue received by the operator for the supply of their service would be fully subject to GST.
The current legal approach, by contrast, takes a needlessly convoluted route. It ignores the patent supply of a service, leaps forward to the consequence of that service (the actionable claim), artificially re-labels this consequence as a “good,” and then imposes a tax on it. This creates a solution for a problem that does not exist. The objective—to tax the revenue from these activities—is already achievable through the standard application of the law to the underlying supply of services.
Therefore, the inclusion of “actionable claim” within the definition of “goods” for these specified activities serves no legitimate tax-levying purpose that is not already fulfilled by the existing definition of “services.” It is a superfluous legal construction that introduces doctrinal inconsistency without providing any additional taxing authority. The underlying service is, and always was, the correct and sufficient subject of the levy.
Conclusion – Constitutional Propriety and Perils of Legal Fiction
Our analysis has established a clear and consistent thesis: the GST framework already possesses the inherent logic and legal mechanism to tax the revenue from lotteries, casinos, horse racing, and online gaming by correctly identifying the underlying supply of services. The current legal approach, which isolates the consequential actionable claim and artificially reclassifies it as a “good,” is not only textually redundant, as demonstrated above, but it also strains the very constitutional and structural integrity of the law itself. This conclusion stands on two final, critical pillars.
First, the classification raises profound constitutional questions. Article 366(12) of the Constitution of India defines “goods” to include “all materials, commodities, and articles.” This definition has been consistently interpreted to refer to tangible, movable property. An actionable claim, being an intangible right to sue for a benefit not in one’s possession, is the conceptual opposite of a “commodity” or “article.” By enacting a subordinate statute (the CGST Act) that expands the definition of “goods” to include an actionable claim, Parliament has arguably acted beyond the scope of the constitutional meaning of the term. A statutory definition cannot override a constitutional one. While the legislature has wide powers to create legal fictions for the purpose of taxation, this power is not absolute and cannot be used to fundamentally alter the nature of concepts enshrined in the Constitution itself. This forced inclusion represents a significant constitutional stress point that merits judicial re-examination.
Second, a law that relies on such artificial fictions and requires continuous “patches”—like the specific amendment needed to rope in online money gaming—inevitably devolves into legal porridge. A well-structured tax system should be built on clear, universal principles that apply consistently. The current approach does the opposite: it creates a special, illogical exception that stands in stark contrast to how all other transactions generating actionable claims are treated. This creates uncertainty, invites litigation, and forces both taxpayers and tax authorities to navigate a contorted legal landscape. A law that needs constant legislative surgery to sustain a fiction is not a robust law; it is a sign of a flawed foundational premise.
The path to clarity and constitutional propriety does not lie in adding more ingredients to this porridge, but in returning to first principles. The Supreme Court, as the ultimate guardian of the Constitution and arbiter of legal doctrine, has the opportunity to revisit this issue. A reconsideration would not undermine the state’s power to tax these activities. Instead, it would affirm a more profound principle: that taxation must be based on the real, substantive nature of a supply. By classifying these transactions correctly as services, the Court would not only resolve a deep-seated doctrinal inconsistency but would also restore logical elegance, predictability, and constitutional alignment to our nation’s most important indirect tax law.
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