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2007 Supreme(Kar) 879
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
Mohan Shantanagoudar, J.
Government of Kingdom of Bhutan, Director of Lotteries, Revenue and Customs Division, Ministry of Finance rep. by its Joint Director, Lakshmi Agency rep. by B. Angamuthu and Kannaiah Agencies rep. by its Proprietor Kannaiah —Appellant
Vs.
State of Karnataka, Department of Parliamentary Affairs and Legislation rep. by its Secretary and Department of Small Savings and Lottery rep. by its Secretary —Respondent
AND
Pavana Agency (A registered Partnership Firm) rep. by its Managing Partner Prakash Shetty S/o Narayana Shetty and C.C.I. Ltd. rep. by its Managing Director —Appellant
Vs.
The Asst. Commissioner of Commercial Taxes and others —Respondent
Writ Petition Nos. 2224, 10856 and 45720/2004, 19646/2005 and 13463 of 2006
Decided on : 05-10-2007
Advocate Appeared:
Mr. Solisorabji, Goreppa Associates, Solisrabji, Aparanji Dinakar, T. Rajaramin, K. Shashikiran Shetty, Shetty and Hegde Associates, Kamath and Kamath, K. Shashikiran Shetty, Shetty and Hegde Associates, Mahesh and Co., for the Appellant
Mr. S. Vijayashankar, Ravindranath, S. Vijayashankar, Ravindranath P.Y., S. Vijayashankar, Ravindranath, Aravind Kumar, Krishna S. Dixit, CGSC., King and Patridge, Niloufer Akbar, AGA, for the Respondent
The main legal point established in the judgment is that the power to levy tax on lotteries, betting, and gambling falls under Entry 62 of List II of the Seventh Schedule, and the regulation and control of lotteries by the Centre under Entry 40 of List I does not prohibit the State from enacting laws relating to taxation on lotteries.
Headnote:
TAX - LOTTERIES - Lotteries (Regulation) Act, 1998 - Summary of Acts and Sections: The court discussed the Lotteries (Regulation) Act, 1998 and the Karnataka Tax on Lotteries Act, 2004. It highlighted the interpretation of Entry 40 of List I and Entry 62 of List II of the Seventh Schedule of the Constitution of India, and their implications on the legislative competence of the State to levy tax on lotteries. The court also emphasized the distinction between the regulation and control of lotteries and the levy of tax on lotteries, betting, and gambling under different entries of the Lists.
Fact of the Case:
The States of Meghalaya, Sikkim, Arunachala Pradesh, Nagaland, and lottery promoters challenged the Karnataka Tax on Lotteries Act, 2004, which imposed tax on lotteries organized by the petitioners. The petitioners argued that the State Act was passed without jurisdiction and legislative competence, contending that the regulation of lotteries falls under the exclusive legislative competence of Parliament.
Finding of the Court:
The court found that the State Act was within the legislative competence of the State as it pertained to the levy of tax on lotteries, betting, and gambling, falling under Entry 62 of List II of the Seventh Schedule. The court emphasized that the regulation and control of lotteries under Entry 40 of List I did not prohibit the State from enacting laws relating to taxation on lotteries under Entry 62 of List II.
Issues: The issues involved the legislative competence of the State to levy tax on lotteries, the interpretation of Entries 40 and 62 of the Seventh Schedule, and the distinction between the regulation and control of lotteries and the levy of tax on lotteries, betting, and gambling.
Ratio Decidendi: The court held that the power to levy tax on lotteries, betting, and gambling fell under Entry 62 of List II, which was independent of Entry 40 of List I. It emphasized that the regulation and control of lotteries by the Centre did not deprive the State of its power to legislate on taxation of lotteries within its own sphere.
Final Decision: The writ petitions were dismissed, and the court upheld the validity of the Karnataka Tax on Lotteries Act, 2004, as within the legislative competence of the State.
Mohan Shantanagoudar, J.— As the common questions of fact and law arise for consideration in these writ petitions, they are taken up together for hearing and are decided by this order.
2. The petitioners herein are the States of Meghalaya, Sikkim, Arunachala Pradesh, Nagaland and promoters of the lotteries. The petitioners are organising, promoting and conducting lottery under Entry 40 of List I of the Seventh Schedule of the Constitution of India and under the Lotteries (Regulation) Act, 1998 (for short hereinafter referred to as the 'Central Act').
3. The petitioners are challenging the validity and vires of the Karnataka Tax on Lotteries Act, 2004 (for short hereinafter referred to as the 'State Act') promulgated by the respondent-State which imposes tax on lotteries, of the petitioners-States. According to the petitioners, the legislation has been passed without any jurisdiction or legislative competence in respect of taxes and thus deserves to be set aside as such.
4. It is contended by Sri Soli Sorabjee, learned senior advocate appearing for petitioners that Entry 40 of List I of Seventh Schedule to the Constitution of India, deals with lotteries organised by the Government of India or Government of State and that therefore any legislation pertaining to lottery has to be made only by the centre. He relied upon the judgments of the Apex Court in the case of H. Anraj and Others Vs. State of Maharashtra, AIR 1984 SC 781 and in the case of State of Haryana Vs. Suman Enterprises and Others, 1994 (2) SCALE 844, to contend that the subject "Lotteries organised by the Government of India or the Government of a State" has been taken out from the legislative field comprised by the expression "betting and gambling" of the individual State and is reserved to be dealt with by Parliament; that the subject covered under Entry 34 of List II relating to betting and gambling involved in State run lotteries is taken out from the legislative field of the State Government in view of the observations made by the Apex Court in the cases mentioned supra; that since the "Lotteries organised by the Government of India and Government of State" has been made a subject within the exclusive legislative competence of Parliament, it must follow, in view of Articles 246(1) and (3), that no Legislature of a State can make a law touching lotteries organised by the Government of India or the Government of State. He further submitted that Section 6 of the State Act imposes tax on draws and the draws invariably take place outside Karnataka State and as nothing relating to lotteries is done in Karnataka State, except selling of lottery tickets, Karnataka State has no competence to levy tax on other State Governments within whose jurisdiction the draws take place. In this connection, he relied upon the judgment of the Bombay High Court in the case of Jiwankumar Sitaram Sondhi v. The Commissioner of Sales Tax Maharashtra State and Ors. in W.P. No. 129/2001, disposed 30.3.2001. He further contended that tax cannot also be imposed on lottery tickets as they are not the goods but are actionable claims as held by the Supreme Court in the case of Sunrise Associates Vs. Govt. of NCT of Delhi and Others, AIR 2006 SC 1908, Kumari Aparanji Dinakar, learned advocate also argued in support of the aforementioned contentions.
Per contra, it is contended by Sri Vijayashankar, learned senior advocate appearing on behalf of the respondent-State that the State has got legislative competence to enact the Act in question, inasmuch as by virtue of the said enactment the State has imposed tax on betting and gambling; Entry 40 of List I does not prohibit the respondent-State to tax on betting and gambling; that the legislation in question is traceable to Entry No. 62 of List-II; that the Central Act (Lotteries (Regulation) Act) deals only with Regulation of Lotteries and not taxes; that the Central Act merely regulates the conduct of the lottery and it has nothing to do with the ta
