States Have Legislative Competence To Levy Tax On Lotteries Run By Other States : Supreme Court Allows Appeals Of Kerala & Karnataka

In a significant judgment, the Supreme Court has held that State legislatures have the competence to levy tax on the lotteries organized by other states. Holding so, a bench comprising Justices MR Shah and BV Nagarathna allowed the appeals filed by the States of Karnataka and Kerala challenging the judgments of Karnataka and Kerala High Courts which held that they lacked the legislative competence to levy tax on the lotteries organized by other states like Nagaland, Meghalaya and Sikkim.In 2010, the Karnataka High Court had held that the State lacked the legislative competence to enact the Karnataka Tax on Lotteries Act, 2004 and struck it down. Likewise, in 2020, the Kerala High Court struck down the Kerala Tax on Paper Lotteries, Act, 2005. The States were directed to refund the tax collected under these legislations. Now, the Supreme Court has set aside these judgments of the Kerala and Karnataka High Courts.Issue involvedThe issue was regarding the interpretation to be given to the expression 'betting and gambling' in Entries 34 and 62 of List II of the Seventh Schedule of the Constitution of India. Whether "betting and gambling" include "lotteries" and whether States have the competence to tax them as per Entry 62 of the Constitution of India.Also, whether Entry 40 of List I (Lotteries organised by the Government of India or the Government of States) restrict the power of States to levy tax on lotteries organized by the other states.Another issue was whether the State legislations are void because of their extra-territorial application.Findings of the CourtOn an analysis of the Constitutional provisions, the judgment authored by Justice BV Nagarathna arrived at the following conclusions :Lotteries come under the ambit of "betting and gambling""Lotteries' is a species of gambling activity and hence lotteries is within the ambit of 'betting and gambling' as appearing in Entry 34 List II.It is only lotteries organised by the Government of India or the Government of State in terms of Entry 40 of List I which are excluded from Entry 34 of List II. In other words, if lotteries are conducted by private parties or by instrumentalities or agencies authorized, by Government of India or the Government of State, it would come within the scope and ambit of Entry 34 of List II.Lotteries, except those organized by Govt of India or a Govt of a State covered under Entry 40 List I, come within State subjectThus, the State legislatures are denuded of their powers under Entry 34 of List II only to the extent of lotteries organised by the Government of India or the Government of a State, in terms of Entry 40 of List I. In other words, except what is excluded in terms of Entry 40 of List I, all other activities which are in the nature of 'betting and gambling' would come within the scope and ambit of Entry 34 of List II. Thus, 'betting and gambling' is a State subject except to the extent of it being denuded of its powers insofar as Entry 40 of List I is concerned.Entry 40 of List I does not take away the power of States to levy tax on other-state lotteriesEntry 62 of List II is a specific taxation Entry on 'luxuries, including taxes on entertainments, amusements, betting and gambling'. The power to tax is on all activities which are in the nature of 'betting and gambling,' including lotteries. Since, there is no dispute that lotteries, irrespective of whether it is conducted or it is organised by the Government of India or the Government of State or is authorized by the State or is conducted by an agency or instrumentality of State Government or a Central Government or any private player, is 'betting and gambling', the State Legislatures have the power to tax lotteries under Entry 62 of List II. This is because the taxation contemplated under the said Entry is on 'betting and gambling' activities which also includes lotteries, irrespective of the entity conducting the same. Hence, the legislations impugned are valid as the Karnataka and Kerala State Legislatures possessed legislative competence to enact such Acts.Thus, the scope and ambit of lotteries organised by Government of India or Government of State under Entry 40 of List I is only in the realm of regulation of such lotteries. The said Entry does not take within its contours the power to impose taxation on lotteries conducted by the Government of India or the Government of State.Legislations have territorial nexusLottery schemes by the Government of other States are organised/conducted in the State of Karnataka or Kerala and there are express provisions under the impugned Acts for registration of the agents or promoters of the Governments of respective States for conducting the lottery schemes in the State of Karnataka and the State of Kerala. This itself indicates sufficient territorial nexus between the respondents– States who are organising the lottery and the States of Karnataka and Kerala.Principle of interpretation of EntriesThe Court said that the following...

States Have Legislative Competence To Levy Tax On Lotteries Run By Other States : Supreme Court Allows Appeals Of Kerala & Karnataka

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