Constitution of India, 1950 – Article 246 – Seventh Schedule – Entry 40 of List 1 – Entry 34 of List II – Entry 62 of List II – Karnataka Tax on Lotteries Act, 2004 – Kerala Tax on Paper Lotteries Act, 2005 - Division Bench of the High Court of Karnataka vide impugned judgments dated 27th December, 2010 and 7th March, 2011 held that the Karnataka Legislature had no legislative competence to pass the Karnataka Tax on Lotteries Act, 2004 - The Division Bench of the High Court of Kerala by the impugned judgments dated 30th April, 2020, 9th August, 2021 and 10th August, 2021, held that the Kerala legislature had no legislative competence to enact the Kerala Tax on Paper Lotteries, Act, 2005 and declared it as unconstitutional and invalid – The respondents herein are the States of Nagaland, Arunachal Pradesh, Meghalaya, Sikkim, and others who are the organisers of the lotteries as well as promoters, inter alia, in the States of Karnataka and Kerala – As per the decision of the High Courts, the States of Karnataka and Kerala were directed to refund the amounts deposited by the Respondents States who had organised the lottery schemes - The present set of appeals have been preferred by the States of Karnataka, Kerala and others being aggrieved by the judgments passed by the Division Benches of the High Courts of the respective States – Held:The subject ‘betting and gambling’ in Entry 34 of List II is a State subject– From the judgments of the Supreme Court, it is clear that ‘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 – The expression ‘betting and gambling’ is thus a genus it includes several types or species of activities such as horse racing, wheeling and other local variations/forms of ‘betting and gambling’ activity – The subject ‘lotteries organised by the Government of India or the Government of a State’ in Entry 40 of List I is a Union subject – 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 –‘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 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 –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 – lottery 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 – Division Benches of the High Courts of Kerala and Karnataka were not right in holding that the respective State Legislatures had no legislative competence to impose tax on the lotteries conducted by other States in their State (in the State of Karnataka and Kerala respectively).
Allowing the appeals, the Court
HELD: 1. Whether, while interpreting Entry 40 of List I alongside Entries 34 and 62 of List II, the power to tax lotteries organised by the Government of India or the Government of a State is also taken away from Entry 62 of List II and is to be read within the ambit of Entry 40 of List I and therefore, the States of Karnataka and Kerala in the instant cases had no legislative competence to enact the impugned Acts. Only lotteries organised by the Government of India or the Government of a State is carved out of the subject, ‘betting and gambling’ in Entry 34 of List II and is placed in Entry 40 of List I and Entry 62 of List II, inter alia, speaks of tax on ‘betting and gambling’. By that, this Court does not think by that the State Legislatures have been denuded of their power to levy tax under Entry 62 of List II on lotteries organised by Government of India or Government of a State. The court say so for the following reasons: (a) Entry 62 of List II is a specific taxation entry on luxuries, including taxes on entertainments, amusements, betting and gambling. The expression ‘betting and gambling’ would have to be read ejusdem generis with entertainments and amusements. The tax is thus on the activity of ‘betting and gambling’ as it is on an activity. (b) The expression ‘betting and gambling’ is also found in Entry 34 of List II. The activity of ‘betting and gambling’ includes, inter alia, lotteries. Lotteries can be conducted by the Government of India or the Government of States or authorised by a State or be conducted by private entities in a State. Thus, a lottery conducted by any of the above entities, Government or private is an activity falling within the nomenclature of ‘betting and gambling’ which is the subject in Entry 34 List II. But 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 continue to remain within the scope and ambit of ‘betting and gambling’ as an activity in Entry 34 of List II. (c) Hence under Entry 62 of List II, the specific power to tax an activity which is ‘betting and gambling’ is reserved with the State legislature and cannot be read within the scope and ambit of Entry
40 of List I which is inherently restricted in its scope. This Court says so for the following reasons:
(i) First, when a specific entry regarding taxation is provided in List II empowering the State Legislature to levy tax on a subject, namely, ‘betting and gambling’ amongst other similar activities, the same cannot be read by implication in an entry of List I namely Entry 40 of List I. This is because a taxation entry is separate and distinct from an entry dealing on a particular subject. This principle has been adequately explained by this Court in several judgments such as M.P.V. Sundararamier and followed in Hoechst Pharmaceuticals, Kesoram discussed above. (ii) Second, a taxation entry or legislative power to levy a tax on ‘betting and gambling’ in the instant case, cannot be 110 split between the Parliament and the State Legislature when the said power is expressly enumerated in Entry 62 of List II. This is the constitutional scheme under the three Lists. This is as per the constitutional scheme. This is also evident on a perusal of the Entries of List III (Concurrent List) which empowers both the Union as well as State Legislature to enact laws on subjects mentioned therein and the powers to levy a tax is conspicuous by its absence. (iii) Third, the object and purpose of Entry 62 of List II is to tax the activity of ‘betting and gambling’, whether it is conducted by a private entity or a State authorised entity or an instrumentality or agency or for that matter by the Government of India or the Government of any State. This is because irrespective of who organises a lottery scheme, it is ultimately a species of gambling. It is nobody’s case that participation in a lottery scheme is not gambling. The said activity i.e. lottery scheme can be conducted throughout the territory of India provided a particular State grants permission to organise and conduct the said activity in that State. Thus, organisation and conducting of lottery can be a pan India activity of gambling and when a particular State permits a lottery scheme conducted by the Government of India or the Government of any State in that State, a tax is leviable on the same, which is a tax on gambling. Thus Entry 62 of List II empowers the State Legislatures to impose tax on ‘gambling’ irrespective of who or which entity is conducting it including the Government of India or Government of any State. (iv) Fourth, ‘betting and gambling’ is a subject enumerated in Entry 34 of List II and is a State subject. Therefore, the permission for conducting any betting and gambling activities within a State, including conduct of a lottery scheme under the said Entry, gives competence to the State Legislatures to also tax the said activity irrespective of who conducts it. This is because what is being taxed is a gambling activity which is squarely covered under Entry 34 of List II and not on lottery per se conducted by Government of India or Government of a State. Therefore, the State Legislature has the competence to tax lottery scheme which is gambling being conducted not only by the Government of India or the Government of any State or by any other agency or instrumentality of a particular State but also by a private entity within the State as gambling. (v) Fifth, the contention of respondents-States that the subject, ‘lotteries organised by the Government of India or the Government of a State’ being placed in Entry 40 of List I would also empower only the Parliament to impose a tax on the same by way of implication under the said Entry itself is not a correct interpretation of the Entries in the Lists. (vi) Sixth, Entry 97 of List I can be invoked only when any matter is not enumerated in List II or List III including any tax not mentioned in the said Lists. There is no specific Entry for levy of tax on betting and gambling in List I. It is only in Entry 62 of List II. Thus, Entry 62 of List II gives legislative competence to a State Legislature to levy a tax on ‘betting and gambling’. This would also include a tax on organisation and conduct of lotteries, whether by the Central Government or Government of any State or authorised by a State or by any private entity within the State when permission has been given by a State Government to conduct such an activity of gambling. Thus, Entries 34 and 62 of List II which deal with ‘betting and gambling’ have been interpreted identically and the said expression is given an identical meaning. Thus, lotteries organised by the Government of India or the Government of a State is only excluded from Entry 34 of List II which deals with ‘betting and gambling’ only, for the purpose of regulation by the Parliament and not for levy of tax. (vii) Seventh, when the State Government has the legislative competence to levy tax on ‘betting and gambling’ as a specific taxation entry is provided to levy tax on the said activity under Entry 62 of List II the said entry must be interpreted comprehensively and not in a restricted or narrow manner by excluding taxation on gambling on lottery conducted by Government of India or any Government of a State from the purview of the said Entry and read into Entry 40 of List I by implication. (viii)Eighth, such a power to levy taxes cannot be read into Entry 40 of List I by implication or into Entry 97 of List I as a residuary power. Such interpretation, if endorsed, it would do violence to the manner of interpretation of Entries in the Lists and prove to be contrary to the Articles of the Constitution and judgments of this Court cited above. (ix) Ninth, if the State Government does not permit a particular species of betting and gambling activity in the State including the organisation and conduct of lotteries by the Government of India or the Government of any State then obviously it cannot tax such an activity. But if it permits any species of betting and gambling activity within the State in terms of Entry 34 of List II then the State has legislative competence to tax such an activity of betting and gambling including lotteries irrespective of who conducts it as per Entry 64 of List II. (x) Tenth, Entry 40 of List I is meant only for the regulation of lotteries organised by the Government of India or the Government of a State. The said Entry cannot be expanded to cover the power to levy taxes on lotteries by the Parliament when as such a power is envisaged in Entry 62 of List II. The Parliament, therefore, cannot tax a gambling activity, namely, organisation of lotteries conducted by the Government of India or for Government of a State on the strength of Entry 40 of List I. It may however regulate the said activity. Any impost strictly for the purpose of regulation of lotteries is permissible so long as it is not a tax on gambling which is only within the ambit of only Entry 62 of List II. In other words, in order to have uniformity in the regulation of lotteries organised by the Government of India or the Government of a State throughout the territory of India, Entry 40 is found in List I and the Parliament is vested with the power to regulate the same. (xi) Eleventh, any betting and gambling activity conducted by a private entity in a State or is authorized by a State Government can be regulated only by the State Legislature. This is because of Entry 34 in of List II which deals with betting and gambling which also includes lotteries and the same does not fall within Entry 40 of List I. (xii) Twelfth, when a Government of a State permits organisation or conduct of lotteries either by the Government of India or the Government of any State thereby enabling participation in the scheme of lottery by those persons who have purchased the lottery tickets in the State, the territorial nexus is established as lottery, being species of betting and gambling, is permitted to be conducted within the State which has sought to impose taxation on the conduct of lotteries. Such nexus persists even when the lotteries promoted within the taxing State are conducted by the Government of India or the Government of any other State. Therefore, the court we do not find any merit in the contention regarding the impugned laws being invalid on account of extra territorial operation. [Para 118][595-G-H; 596-A-H; 597-A-H; 598-A-H; 599-A-H; 600-A-H; 601-A]
2. In conclusion this Court holds that the tax sought to be imposed by the State Legislatures of Karnataka and Kerala by way of the impugned Acts, is traceable to the power conferred on the State Legislatures under Entry 62 of List II. The said entry contemplates imposition of taxes, inter alia, on the entire genus of ‘betting and gambling’. having concluded that ‘lottery’ of every kind, whether organized by the Government of India or the Government of a State or by a private entity is included within the genus of ‘gambling’, we find no reason to hold that State organized lotteries are excluded from the ambit of ‘betting and gambling’ as appearing in Entry 62 of List II. We are not inclined to accept the view that ‘lotteries organized by the Government of India or the Government of a State’ are to be excluded from the expression ‘betting and gambling’ as appearing in Entry 62 of List II which deals with taxes on gambling activities, simply because such category of lotteries is excluded from the regulatory field relatable to betting and gambling under Entry 34 of List II and included in Entry 40 of List I. Exclusion of a legislative field from a term appearing in a general Entry, does not necessarily mean that such field ought to be excluded from the taxation Entry. This means that the term ‘betting and gambling’ in Entry 62 of List II is being construed in the same way as in Entry 34 of List II. The expression is accorded the same meaning and interpretation in both the Entries, i.e., that gambling includes lotteries. However, ‘lotteries organized by the Government of India or the Government of a State’ have been carved out of Entry
34 of List II and been placed with the Union. Entry 34 of List II is denuded to this limited extent. Such transposition of power does not mean that the term ‘betting and gambling’ has a different meaning in each of the aforesaid Entries. It only implies that for regulatory purposes, having regard to the need for uniform legislation throughout the territory of India, the Parliament has been conferred with exclusive jurisdiction to regulate the conduct of lotteries, throughout the territory of India. [Para 119][601-BG]
3. In the instant case, the tax imposed is on the ‘gambling’ nature of lotteries, which field is covered in its entirety under Entry 62 of List II and the power to impose tax under this Entry extends in relation to lottery of every kind, with no distinction as to the entity organizing the same. [Para 120][601-G-H; 602-A]
4. Thus, in the context of lotteries, the organisation and conduct of a lottery scheme being a pan India activity, when any State Government permits the Government of India or any other State Government to organise the lottery scheme in that State, Entry 62 of List II would enable the Legislature of that State to levy taxes on the same. [Para 121][602-B]
5. Hence, in our view, the Legislatures of the State of Karnataka and Kerala were fully competent to enact the impugned Acts and levy taxes on the activity of ‘betting and gambling’ being organised and conducted in the said respective States, including lotteries conducted by the Government of India or the Government of any State. [Para 122][602-C]
6. The Division Benches of the High Courts was not right in holding that the State Legislatures had no power to levy tax on lotteries conducted by the Government of India or the Government of any State or Union territory in the State of Karnataka as such a power could be read in Entry 40 or Entry 97 of List I and only the Parliament could levy such a tax. Since we have held that the States of Karnataka and Kerala had the legislative competence to enact the impugned Acts, the question of refund of tax collected under the same does not arise. [Para 123][602-D-E]
7. In view of the aforesaid discussion, this Court comes to the following summary of conclusions: - (i) That the subject ‘betting and gambling’ in Entry 34 of List II is a State subject. (ii) From the judgments of this Court, it is now clear that ‘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.
(iii) The expression ‘betting and gambling’ is relatable to an activity which is in the nature of ‘betting and gambling’. Thus, all kinds and types of ‘betting and gambling’ fall within the subject of Entry 34 of List II. The expression ‘betting and gambling’ is thus a genus it includes several types or species of activities such as horse racing, wheeling and other local variations/forms of ‘betting and gambling’ activity. The subject ‘lotteries organised by the Government of India or the Government of a State’ in Entry 40 of List I is a Union subject. 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. (iv) Thus, 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. (v) 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 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. (vi) 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. (vii) We also hold that lottery 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.
(viii) In view of the aforesaid conclusions, the court find that Division Benches of the High Courts of Kerala and Karnataka were not right in holding that the respective State Legislatures had no legislative competence to impose tax on the lotteries conducted by other States in their State (in the State of Karnataka and Kerala respectively). [Para 124][602-E-H; 603-A-H; 604-AE]
Skill Lotto Solutions Pvt. Ltd. vs. Union of India (2020) SCC Online SC 990; Govind Saran Ganga Saran vs. Commissioner of Sales Tax AIR 1958 SC 1041 : [1985] SCR 985; M.P.V Sundararamier and Co. vs. State of Andhra Pradesh AIR 1958 SC 468 : [1958] SCR 1422; State of West Bengal vs. Kesoram Industries Limited (2004) 10 SCC 201 : [2004] 1 SCR 564; Synthetics and Chemicals Ltd. vs. State of Uttar Pradesh (1990) 1 SCC 109 : [1989] 1 Suppl. SCR 623; JalkalVibhag Nagar Nigam vs. Pradeshiya Industrial and Investment Corporation (2021) SCC Online SC 960; Mafatlal Industries Ltd. vs. Union of India (1997) 5 SCC 536, [1996] 10 Suppl. SCR 585; Somaiya Organics (India) Ltd. vs. State of Uttar Pradesh (2001) 5 SCC 519 : [2001] 3 SCR 33; I.C. Golaknath vs. State of Punjab AIR 1967 SC 1643 : [1967] SCR 762; India Cement Ltd. vs. State of Tamil Nadu (1990) 1 SCC 12 : [1989] 1 Suppl. SCR 692; Jindal Stainless Ltd. vs. State of Haryana (2017) 12 SCC 1 : [2016] 10 SCR 1;
Prof.Yashpal vs. State of Chhattisgarh (2005) 5 SCC
420 : [2005] 2 SCR 23; Union of India vs. Harbhajan Singh Dhillon (1971) 2 SCC 779 : [1972] 2 SCR 33; Sunrise Associates vs. Government of Delhi (2006) 5 SCC 603 : [2006] 1 Suppl. SCR 421; Federation of Hotel and Restaurant Association of India vs. Union of India (1989) 3 SCC 634 : [1989] 2 SCR 918; New Delhi Municipal Council vs. State of Punjab (1997) 7 SCC
339 : [1996] 10 Suppl. SCR 472; Maharaj Singh vs. State of UP 1977 (1) SCC 155 : [1977] 1 SCR 1072; State of Uttar Pradesh vs. Vam Organic Chemicals Limited and Ors. (2004) 1 SCC 225 : [2003] 4 Suppl. SCR 957; State of Orissa vs. M.A. Tulloch AIR 1964 SC 1284 : [1964] SCR 461– referred to
Prafulla Kumar Mukherjee vs. Bank of Commerce, Khulna AIR 1947 P.C. 60; State of Bombay vs. FN Balsara AIR 1951 SC 318 : [1951] SCR 682; Atiabari Tea Company Ltd. vs. State of Assam AIR 1961 SC 232 : [1961] SCR 809; Ujagar Prints vs. Union of India AIR 1989 SC 516 : [1988] 3 Suppl. SCR 770; United Provinces vs. Atiqa Begum AIR 1941 FC 16; Calcutta Gas Company vs. State of West Bengal AIR 1962 SC 1044 : [1962] Suppl. SCR 1; RMDC vs Union of India AIR 1957 SC 628; [1957] SCR 930; Re. Sea Customs Act AIR 1963 SC 1760 : [1964] SCR 787; Khyerbari Tea Co. Ltd. vs. State of Assam AIR 1964 SC 925 : [1964] SCR 975; Hoechst Pharmaceuticals Ltd. vs. State of Bihar AIR 1983 SC 1019 : [1983] 3 SCR 130; Hingir - Rampur Coal Co. Ltd. vs. State of Orissa AIR 1961 SC 459 : [1961] SCR 537; State of Bombay vs. R.M.D. Chamarbaugwala AIR 1957 SC 699 : [1957] SCR 874; H. Anraj vs. State of Maharashtra, (1984) 2 SCC 292 : [1984] 2 SCR 440; H. Anraj vs. Government of Tamil Nadu (1986) 1 SCC 414 : [1985] 3 Suppl. SCR 342; State of Haryana vs. M/s Suman Enterprises (1994) 4 SCC 217; B.R. Enterprises vs. State of Uttar Pradesh (1999) 9 SCC 700 : [1999] 2 SCR 1111; RMDC vs. State of Mysore AIR 1962 SC 594 : [1962] SCR 230; Sunrise Associates vs. Govt. of NCT of Delhi (2006) 5 SCC 603 : [2006] 1 Suppl. SCR 421; – relied on.
Reader’s Digest Association ltd. v. Williams, (1976) 1 W.L.R. 1109 – referred to.
Black’s Law Dictionary, 104; Advanced Law Lexicon, P. RamanathaAiyar (6th Edition), 104; Words and Phrases [Permanent Edition] Vol. 25-A at page 439, 104; Advanced Law Lexicon, P. RamanathaAiyar (1997
Edition), 104; Concise Oxford English Dictionary [Oxford University Press, 11 Edn., 2004], 104; Webster’s New American College Dictionary (1981), 105 – Relied on.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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