Supreme Court Will Hear Appeal Against Kerala HC Judgment Which Declared Kerala Tax on Paper Lotteries Act Unconstitutional

The Supreme Court has granted leave in the Special Leave Petition filed by the State of Kerala against the Kerala High Court judgment which held the Kerala Tax on Paper Lotteries Act unconstitutional.

The bench comprising Justices DY Chandrachud and MR Shah stayed the judgment to the extent of the direction with regard to refund of the amount already deposited

The High Court had held that the State of Kerala was lacking legislative competence to impose tax under the Act on state organized lotteries by deriving its source of power from Entry 62 of List II of the Constitution.

The state contended that, the judgments of Karnataka and Bombay High Courts referred by the Kerala High Court are under challenge before the Apex Court. The state also relied on the Supreme Court judgment in Skill Loto Solutions Pvt Ltd v Union of India, which upheld the levy of Goods and Services Tax(GST) on lotteries, betting and gambling. 

There shall be an ad-interim order by which the judgment of the High Court to the extent of the direction with regard to refund of the amount already deposited, shall remain stayed, the bench said while granting leave.

"The activity of conduct of the lottery or the measure upon which tax is sought to be levied, cannot be said to have any direct nexus with the sale of tickets taking place within the State of Kerala. Hence the contention that the Act is intended to introduce an indirect taxation on the sale of lottery tickets within the State of Kerala, has to be accepted. If it is a tax on the sale of lottery tickets, the same is prohibited under law. If it is something prohibited under law, the same cannot be done through an indirect method. If it is tax on other activity of organising and conducting of the lottery, then it becomes extra territorial. Hence, considering the provisions of the charging section and also considering the territorial application and further considering the law remaining settled prohibiting taxation on the sale of lottery tickets, we are inclined to sustain the challenge made against the impugned legislature on the points urged as above.". the Division Bench of the High Court had observed in the judgment.

Case: State of Kerala vs. State of Sikkim [SLP (C) No.12289/2020]

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