Sakunjay Vyas
Published on: March 24, 2022 at 10:59 IST
The two-judge bench of Justice Dr. M.R. Shah and Justice B.V. Nagarathna of the Supreme Court overturned decision passed by the Division Bench of the High Court of Karnataka and Kerala Bench, which held that the State Government lacked the legislative competence to levy tax on the lotteries organized by other states like Nagaland, Meghalaya, and Sikkim.
The Supreme Court recently ruled that State Legislature is competent to levy taxes on lotteries run by other states.
The two-judge bench of Justice Dr. M.R. Shah and Justice B.V. Nagarathna heard an appeal against the Division Bench of the High Court of Karnataka and Kerala, which held that the State Government lacked the legislative competence to levy tax on the lotteries organized by other states like Nagaland, Meghalaya, and Sikkim.
The Apex Court, while deciding the present appeal, dealt with several issues being put up to conclude the extent of the power of state legislature to levy tax on the lottery. Those issues were:
• The 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” includes “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 organized by the Government of India or the Government of States) restricts 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.
The Apex Court stated that Lotteries come under the ambit of “betting and gambling.” That the lotteries fall within the ambit of ‘betting and gambling’ as appearing in Entry 34 List II, if lotteries are conducted by private parties or by instrumentalities or agencies authorized, by the Government of India or the Government of State, it would come within the scope and ambit of Entry 34 of List II.
Nevertheless, what has been carved out of Entry 34 of List II is only lotteries conducted by the Government of India or the Government of any State. Therefore, all other types of lotteries remain within the scope and ambit of ‘betting and gambling as an activity in Entry 34 of List II.
While describing the ambit and scope of lotteries under Entry 40 List I, the apex court states that lotteries, except those organized by Government of India or a Government of a State, covered under Entry 40 List I, come within State subject.
Except what is excluded in terms of Entry 40 of List I, all other activities in the nature of ‘betting and gambling’ would come within the scope and ambit of Entry 34 of List II. Insofar as Entry 40 of List I, is concerned, It does not take away the power of States to levy tax on other-state lotteries.
That the Apex Court furthermore explained that Entry 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 like ‘betting and gambling,’ including lotteries. Since there is no dispute that lotteries, irrespective of whether it is conducted or is organized 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.
The Court further stated that a sufficient territorial nexus exists between the states conducting lotteries and the State of Karnataka and Kerala. There are express provisions available for the 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.
The Apex Court, while discussing the Entries prescribed the following approaches to be adopted to interpret the entries in the Seventh Schedule :
1. The Entries in the different Lists should be read together without giving a narrow meaning to any of them. Even where an Entry is worded in broad terms, it cannot be so interpreted as to negate or override another Entry or make another Entry meaningless. In case of an apparent conflict between different entries, it is the duty of the Court to reconcile them in the first instance.
2. The doctrine of pith and substance should be used in case of an apparent overlapping between two Entries.
3. Where one Entry is made ‘Subject to’ another Entry, all that it means is that out of the scope of the former Entry, a field of legislation covered by the latter Entry has been reserved to be specially dealt with by the appropriate Legislature.
4. When one item in general and another is specific, the latter will exclude the former on a subject of legislation. If, however, they cannot be fairly reconciled, the power enumerated in List II must give way to List I.
5. On a close perusal of the entries in the three Lists of the Seventh Schedule of the Constitution, it is discerned that the Constitution has divided the topics of legislation into the following three broad categories:
(i) Entries enabling laws to be made;
(ii) Entries enabling taxes to be imposed; and
(iii) Entries enabling fees and stamp duties to be collected. Thus, the entries on the levy of taxes are specifically mentioned.
Therefore, per se, there cannot be a conflict of taxation power of the Union and the State. Thus, in substance, the taxing power can be derived only from a specific taxing Entry in an appropriate List in the Seventh Schedule. Such a power has to be determined by the nature of the tax and not the measure or machinery set up by the statute.
As a result, the Apex Court overturned the decision passed by the Division Bench of the High Court of Karnataka and Kerala Bench, stating that the High Courts of the respective states were not correct in holding that the respective State Legislatures had no legislative competence to impose a tax on the lotteries conducted by other States in their State.