State of Karnataka & Anr etc v. State of Meghalaya & Anr etc

Case snapshot

Sections / provisions: Various entries in Union and State list of Constitution of India and interplay between them.

Questions before the Court / Tribunal

• State of Karnataka & Anr etc Vs State of Meghalaya & Anr etc Forum-Supreme Court of India Date-23rd March 2022 Sub-Whether power to levy tax on lotteries under Entry No 62 of List II of Constitution of India lies with a State Government even in respect of those lotteries which are conducted by Central Government or another state government. The Supreme Court in this very interesting judgement was called upon to decide as to who has the power to levy and collect the taxes on lotteries in pursuance of the entries as contained in the Union and State list of the Constitution of India in view of overlap between two entries. The apex court in a 122 page judgement guided by the doctrine of pith and substance which is applied to find out the true character of the enactment and the entry within which it would fall and also the law that when a power is conferred on the Legislature to levy a tax,…
• Which factual, statutory and procedural conditions controlled the requested relief?
• How did the forum apply the governing provisions to the evidence and procedural history recorded in this case?

Material facts and procedural background

the amounts due based on evaluation of such proof, without any delay. 3. Being aggrieved, the States of Karnataka, Kerala and others are in appeal before this Court. 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. Bird’s eye view of the controversy: 4. The controversy in these cases is 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. Further, whether the ‘lotteries organised by the Government of India or Government of a State’, which is a subject in Entry 40 of List I also encompasses the power to levy tax on the said lotteries? Consequently, whether under Entry 62 of List II the State Legislature is denuded of the power to levy tax on the said subject? In other words, whether the subject covered in Entry 40 of List I restricts the scope and ambit of Entries 34 and 62 of List II? If the answer is in the affirmative, whether the State Legislatures have no legislative competence to levy tax on lotteries organised by the Government of India or Government of a State. Consequently, the question in these cases is , whether, the legislature of States of Karnataka and Kerala had the legislative

Submissions on behalf of State of Kerala: 13. Sri Pallav Shishodia, learned Senior Counsel appearing for the appellant-State of Kerala , adopted the submissions made by learned Senior Counsel for the State of Karnataka. He made the following additional submissions: He submitted that under the Kerala Act, 2005 and the Rules made thereunder, the respondents were liable to pay the tax in advance before any draw , under S ection 10 thereof. The respondents herein in fact filed a writ petition seeking a writ of mandamus against the appellant-State of Kerala directing them to accept advance tax. In addition, a companion petition was filed challenging Section 10 of the aforesaid Act which was decided by

14. Sri Shishodia, learned Senior Counsel, contended that opportunity was granted to the respondents to prove that the burden of tax paid during the period 2006 -2010 was not passed on to consumers/purchasers of lottery tickets. That the same is contrary to law and was completely unwarranted in the present case. In support of his argument, he fervently relied on Mafatlal Industries Ltd. vs. Union of India - [(1997) 5 SCC 536] where it was held that there is a rebuttable presumption that an indirect tax borne by an assessee is passed on to consumers. Even when challenge to constitutionality of a tax succeeds, the relief of refund can be granted only when the assessee makes a claim to allege and establish that as a fact , the burden of tax collected in the interregnum was not passed on to consumers.

Submissions on behalf of Respondents: Submissions on behalf of Nagaland: 16. Sri C. Aryama Sundaram, learned Senior Counsel appearing on behalf of the State of Nagaland in Civil Appeal No.10467 of 2011 raised the following main contentions: (i) Contentions pertaining to the legislative competence, or the lack thereof, of the State of Karnataka.

23. It was submitted on behalf of the State of Nagaland that the impugned Act in fact, seeks to impose a tax on lotteries organized by the Government of India or by the Government of any State

Appellant / petitioner / assessee submissions

The judgment does not separately label this side’s submissions in an independently extractable passage. No contention is inferred; read the full record.

Revenue / respondent submissions

17. Sri. C. Aryama Sundaram, learned Senior Counsel, supported the judgment of the High Court of Karnataka and contended that the State of Karnataka had no legislative competence to impose tax on the lotteries organised by the Governments of the Respondents-States. It was submitted that lotteries organised by the Government of India or by the Government of any State, fall within the ambit of Entry 40 of List I and therefore any legislation pertaining to such lotteries may only be enacted by the Parliament.

Reference was made to the decision of this Court in B.R. Enterprises (supra) wherein the importance of lotteries, as a source of revenue to North-Eastern States was recognised. It was urged that the State of Karnataka must not be permitted to curtail the rights of North- Eastern States to conduct lotteries. 30. On the aforesaid su bmissions, learned Senior Counsel appearing for the State of Nagaland sought dismissal of the appeals. Submissions on behalf of State of Sikkim: 31. Sri S.K. Bagaria, learned Senior Counsel appearing for the State of Sikkim, First Respondent in Civil Appeal No. 911 of 2021, adopted the contentions advanced by Sri Aryama Sundaram, learned Senior Counsel appearing on behalf of the State of Nagaland in Civil Appeal No. 10467 of 2011. He further elaborated on the submissions as regards the exclusion of the species of ‘lotteries’ from the genus of ‘betting and gambling’ as appearing in Entries 34 and 62 of List II vide H. Anraj (supra) and M/s Suman Enterprises (supra). He contended that although the decision of this Court in H. Anraj (supra) excluded ‘lotteries’ from the legislative field of the State Legislature while examining Entry 34 of List II and no reference was made in the said judgment to Entry 62 of List II, it may be construed that ‘lotteries’ organised by the Government of India or the Government of a State are not

any of those components of the levy will be fatal to its validity.” 103. The above parameters may be identified in the impugned Acts under consideration, as follows: (i) In the context of the tax sought to be imposed by the impugned Acts, the basis of levy is the conduct of lotteries within the State of Karnataka or Kerala. In other words, the subject of taxation is the conduct of lottery schemes, by the Government of India or the Government of other States, within the State of Kerala or Karnataka. While it has rightly been stated by the learned counsel appearing on behalf of the Respondents that the conduct of lotteries involves a host of events such as formulation and notification of scheme of lotteries, printing, transportation and sale of lottery tickets etc., all these events constituting the conduct of the lotteries are ultimately for the participation of persons, within the State of Karnataka or Kerala. Therefore, the subject of tax is the conduct of lotter y schemes , within the State of Karnataka or Kerala, which is enabled by the propensity of persons to participate in the lottery schemes. (ii) The measure of taxation in the instant case is the ‘draw.’ The impugned legislations contemplate two kinds of draws, namely bumper draw and draw other than a bumper draw.

Court / Tribunal analysis and reasoning

12. It was further contended that lotteries are res extra commercium i.e., outside the ambit of trade and commerce and therefore, it will neither get protection under Art. 19(1)(g) relating to trade, occupation, business or commerce nor the protection under Article 301 dealing with inter -state trade, commerce and business, even if the State happens to be the operator , as was held in the cases of R.M.D. Chamarbaugwala (supra) and B.R. Enterprises vs. State of Uttar Pradesh – [(1999) 9 SCC 700].

other words, it was contended that taxes on betting and gambling as envisaged under Entry 62 of List II, would be limited to those lotteries which are neither organised by the Government of India nor by the Government of any State. It was submitted that since the Act in question, enacted by the Legislature of the State of Karnataka, seeks to impose tax on the lotteries organised by the Central Government or by the Government of a State, it is beyond the legislative competence of State of Karnataka. That the State of Karnataka by enacting the impugned Act has attempted to legislate on an aspect which lies within the exclusive legislative domain of the Parliament and therefore the said Act is ultra vires the Constitution and is liable to be declared so.

20. It was submitted that although the afore-cited decisions make no specific reference to Entry 62 of List II and only observe that State organised lotteries were specifically taken out of the ambit of Entry 34 of List II, ‘betting and gambling’ as appearing in both these entries must be construed in a similar manner; i.e. that they are inclusive only of those lotteries which are organised other than by the Government of India or by the Government of any State. In this regard, Jindal Stainless Ltd. vs. State of Haryana – [2017 (12) SCC 1 ] was pressed into service to contend that the same expression, if used in different entries in the same List, would have the same meaning. Therefore, although State organised lotteries have specifically been carved out of the expression

21. It was further urged in this regard that if Entry 34 of List II is a general entry which deals with the regulatory power of the State Legislature in the area of ‘betting and gambling’, Entry 62 of List II vests a more specific power of taxation over ‘betting and gambling’ with the State Legislature. Once it has been held that a given expression, as appearing in a general entry would be construed to exclude a certain item, then it would naturally follow that such item would also be excluded from a specific entry which employs the said expression. In the instant case, lotteries organised by the Government of India or the Government of any State have been specifically excluded from the ambit of ‘betting and gambling’ as appearing in Entry 34 of List II, therefore, it would follow that it would also be excluded from Entry 62 of List II which is a narrower power, only dealing with taxation. Reference was made to Prof. Yashpal vs. State of Chhattisgarh – [2005 (5) SCC 420 ] wherein it was held that a narrow or restrictive interpretation would generally not be accorded to a legislative heading which is general in nature. In this regard it was contended that although a general entry is not usually given a restrictive meaning, w hen in exceptional cases a restrictive

and that legislative competence to enact such statute could not be traced to Entry 62 of List II. The said Entry deals with the power to impose ‘taxes on luxuries, including taxes on entertainment, amusements, betting and gambling.’ The event or incidence for imposition of such tax would be either the conduct of lotter ies or the sale and purchase of lottery tickets. That by enacting the impugned Act, what the State Legislature sought to tax was the sale of lottery tickets, which was not permissible in light of the decision of this Court in Sunrise Associates vs. Government of Delhi – [(2006) 5 SCC 603] . In the said case, it was held that lottery tickets were not goods within the meaning of the Sales Tax Act and therefore they cannot be subject to sales tax. That the impugned Act, in a clandestine manner, sought to impose sales ta x on the sale of lottery tickets which is not permissible.

26. Sri Aryama Sundaram next contended that for a State to impose tax on any activity, there ought to be a territorial nexus between the activity sought to be taxed and the levy of the tax. In the instant case, even if the submission made by on behalf of the State of Karnataka that t he activity sought to be taxed is the propensity to participate in lotteries, no part of such activity has arisen or taken place within the State of Karnataka. All activities which are to be undertaken for the conduct of lotteries, such as formulation and notification of the scheme of lotteries, printing of lottery tickets, transportation of lottery tickets, conducting of the draw, declaration of winners, were undertaken outside the territorial limits of Karnataka and therefore, the conduct of lotteries cannot be subject to tax by the State of Karnataka. In this regard, reference was made to Article 246 (3) of the Constitution of India to contend that a State Government has the power to enact laws for the State or any part thereof. A State Government does no t have the power to extend its laws beyond its territorial limits. If a State law is allowed to operate in relation to activities which are conducted beyond its territorial limits, it would have the effect of encroaching upon the legislative power of other States.

Operative decision and relief

around the world. That lotteries involve the sale by an organising body, typically the government but also occasionally private businesses or cha rities, of a ticket , giving the possessor, a potential monetary reward. Lotteries differ from casinos in that lottery ticket sales generally do not take place at a location specifically set aside for gambling, and modern lotteries are usually operated by g overnments instead of private firms. It is further observed that lotteries are of particular interest to scholars for a variety of reasons. First, they represent an important source of government revenue in many States and countries, so they are of interes t to public finance economists. Second, lotteries provide researchers interested in micro - economic theory and consumer behavior with a type of experimental lab that allows economists to explore these topics.

Parliament to legislate for the co ntrol and regulation of prize competitions and in pursuance thereof, the Parliament passed the Prize Competitions Act, 1955 (Act 42 of 1955) (Central Act) which came into force on 1 st April, 1956. On 24 th February, 1956, the Mysore Legislature passed a resolution adopting the said Central Act. Petitions were filed under Article 32 of the Constitution before this Court challenging the validity of the Central Act but the same were dismissed vide R.M.D.C. vs. Union of India (supra). Thereafter, certain amendme nts were made to the Mysore Act, as originally passed in 1951. The Mysore Amending Act was challenged in the High Court of Mysore by a petition filed under Article 226 which was dismissed and against that judgment and order , the appeal was brought before this Court pursuant to a certificate issued by the High Court under Article 132(1) of the Constitution. The challenge to the constitutionality of the Mysore Amending Act was, inter alia, on the ground that the Mysore Legislature, by adopting the Central Act , was no longer competent to pass any law in regard to prize competitions because the whole matter including the power of taxation was surrendered in favour of the Parliament.

In view of the above answers, the writ petition was dismissed. (j) In Reader’s Digest Association ltd. v. Williams – [(1976) 1 W.L.R. 1109], it was said: “A lottery is the distribution of prizes by chance where the person taking part in the operation, or a substantial number of them, make a payment or consideration in return for obtaining their chance of a prize. There are really three points one must look for in deciding whether a lottery has been established: first of all , the distribution of prizes, secondly, the fact this was to be done by means of a chance and thirdly, that there must be some actual contribution made by the participants in return for th eir obtaining a chance to take part in the lottery.

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, we 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). 125. In the result, the appeals filed by the State of Karnataka and State of Kerala and others are allowed by setting aside the impugned judgments passed by the Division Benches of the High Courts of Karnataka and Kerala. Parties to bear their respective costs. …..……………………..J. [M.R. SHAH]

Ratio and legal principle

The narrow proposition associated with State of Karnataka & Anr etc v. State of Meghalaya & Anr etc concerns state of karnataka & anr etc vs state of meghalaya & anr etc forum-supreme court of india date-23rd march 2022 sub-whether power to levy tax on lotteries under entry no 62 of list ii of constitution of india lies with a state government even in respect of those lotteries which are conducted by central government or another state government. the supreme court in this very interesting judgement was called upon to decide as to who has the power to levy and collect the taxes on lotteries in pursuance of the entries as contained in the union and state list of the constitution of india in view of overlap between two entries. the apex court in a 122 page judgement guided by the doctrine of pith and substance which is applied to find out the true character of the enactment and the entry within which it would fall and also the law that when a power is conferred on the legislature to levy a tax,… The proposition cannot be separated from the judgment’s facts, the governing statutory version, the forum’s jurisdiction, and the exact relief recorded in CIVIL APPEAL NOS.10466-10476 OF 2011.

For working-paper purposes, the decision should be cited only after matching the material facts and reading the passages under the judgment-grounded record above. The editorial outcome label “Disposed / relief as recorded” is a navigation aid; it does not replace the operative order or explain every issue in a multi-issue case.

Why this judgment matters

This decision is relevant when a file raises the same central question identified in the source headnote: State of Karnataka & Anr etc Vs State of Meghalaya & Anr etc Forum-Supreme Court of India Date-23rd March 2022 Sub-Whether power to levy tax on lotteries under Entry No 62 of List II of Constitution of India lies with a State Government even in respect of those lotteries which are conducted by Central Government or another state government. The Supreme Court in this very interesting judgement was called upon to decide as to who has the power to levy and collect the taxes on lotteries in pursuance of the entries as contained in the Union and State list of the Constitution of India in view of overlap between two entries. The apex court in a 122 page judgement guided by the doctrine of pith and substance which is applied to find out the true character of the enactment and the entry within which it would fall and also the law that when a power is conferred on the Legislature to levy a tax,… Its practical value lies in the way the Supreme Court of India connected the governing provisions—Various entries in Union and State list of Constitution of India and interplay between them.—to the procedural posture and evidence before it.

The authority level is Supreme Court. That affects persuasive or binding weight, but authority level alone is never enough. Territorial jurisdiction, statutory period, the identity of the challenged order, and later appellate treatment must all be checked before the case is used in advice, a submission, or litigation strategy.

Practitioner action points

• Begin with the complete judgment and mark the paragraphs supporting the exact proposition relied upon.
• Match the statutory version of Various entries in Union and State list of Constitution of India and interplay between them. and the decision date 2022-03-23; do not assume the current text is identical.
• Compare the notice, assessment, appeal or other procedural sequence with the chronology recorded in this case.
• Verify the stated later-history status and any review, appeal, SLP, curative or rectification proceedings before citation.
• Record why the client’s evidence is materially similar, and also record any fact capable of distinguishing the result.

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Detailed reliance and distinction analysis

Identity check. Confirm that the cited cause title is State of Karnataka & Anr etc v. State of Meghalaya & Anr etc, the proceeding is CIVIL APPEAL NOS.10466-10476 OF 2011, and the decision is dated 2022-03-23. These fields are taken from the judgment record and should appear exactly in the citation note.

Bench check. The judgment identifies the coram as Nagarathna, J. (authoring judge identified in judgment). A later order by another bench, a larger bench, or a higher forum may alter the weight or interpretation of the proposition.

Provision check. The source associates the dispute with Various entries in Union and State list of Constitution of India and interplay between them.. The practitioner should place the historical statutory text next to the current text and identify every amendment, proviso, explanation, rule or notification that could change the analysis.

Fact check. The source issue is not a free-standing abstract rule. It arises from the concrete record summarized above. A reliable application note should list the common facts, the different facts, and whether each difference affects jurisdiction, admissibility, limitation, burden, computation or relief.

Remedy check. The recorded result is Disposed / relief as recorded. Where a matter is remanded, set aside, partly allowed, or disposed with directions, the exact operative language is more important than a binary winner/loser label.

History check. The current closure state is REVIEW_CURATIVE_DOCKET_CHECK_PENDING. If that state is pending, the page does not assert that no later case exists. It means the check remains open and must be completed at the point of professional reliance.

Section / provision impact

• Various entries in Union and State list of Constitution of India and interplay between them. — apply the exact version considered in the judgment.

Case network

• Apex Laboratories Pvt. Ltd. v. Deputy Commissioner of Income Tax — Supreme Court of India · Disposed / relief as recorded
• Rohan Developers Pvt. Ltd. v. ITO (IT) — Bombay High Court · Disposed / relief as recorded
• Murthy & Ors v. Saradambal & Ors — Supreme Court of India · Disposed / relief as recorded
• The CIT, Chennai v. Mohammed Meeran Shahul Hameed — Supreme Court of India · Disposed / relief as recorded

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