2009 (8) TMI 1242 - HC - VAT and Sales Tax

Constitutional validity of the Maharashtra Tax on Lotteries Act, 2006 - levy of sales tax on Lottery tickets - It is the contention of the petitioners that the legislature of State of Maharashtra has no legislative power to enact Laws relating to State Lotteries including Laws relating to taxation, and therefore, according to the petitioners, the State Act is beyond the legislative competence of the legislature of State of Maharashtra. Held that - Looking to the scheme of the Act, it is clear that Draw is used only as a measure of tax. What is said to be taxed is betting and gambling. From the preamble of the State Act it is clear that levy and collection of tax is on the lotteries (betting and gambling). The tax , as defined under the State legislation, means the tax levied and collected on lotteries. The Act does not levy tax on Draws or sale of tickets, the levy of tax is on betting and gambling which is offered within the State of Maharashtra by organising sale of tickets for participation in the lottery. The measure of levying of tax depends upon as to whether the lottery organised is relating to weekly draw, monthly draw or bumper draw. It is, thus, clear that levying of tax is not on the draw which takes outside the State. The draw is only a measure of tax and the tax is not imposed on the draw itself. Merely because the term Scheme is not defined, the provisions under Section 3 of the Act do not become vague. Whether the exercise of legislative power is colourable? - Held that - Once we find that there is clear legislative competence in the State legislature to legislate, there is no exercise of power being colorable merely because earlier a particular type of tax was levied which was found to be not legal. So far as the submission that the State Act has been enacted to make the business of selling of lottery tickets of the lotteries organised by the other States unviable is concerned, we find from the petition that there is no material placed in support of this submission, and therefore, it is not possible for us to examine this submission. Petition dismissed.

Issues Involved:
1. Legislative competence of the State of Maharashtra to enact the Maharashtra Tax on Lotteries Act, 2006.
2. Allegation of colorable exercise of legislative power.
3. Extra-territorial application of the law.
4. Vagueness of the term "lottery scheme" and violation of Article 14 of the Constitution.

Detailed Analysis:

1. Legislative Competence of the State of Maharashtra:
The petitioners argued that the Maharashtra legislature lacked the authority to enact the Maharashtra Tax on Lotteries Act, 2006, as lotteries organized by the Government of India or State Governments fall under Entry 40 of List I in the Seventh Schedule of the Constitution, thereby making it a subject exclusively under Parliament's jurisdiction. They contended that the State Act was beyond the legislative competence of the Maharashtra legislature.

The court held that the Maharashtra legislature had the competence to enact the State Act under Entry 62 of List II of the Seventh Schedule, which includes "Taxes on luxuries, including taxes on entertainments, amusements, betting, and gambling." The court referenced the Supreme Court's decision in State of W.B. Vs. Kesoram Industries Ltd., emphasizing that taxation is treated as a distinct matter for legislative competence and that the power to tax is not an incidental power. The court concluded that the State legislature has the authority to impose taxes on lotteries as they fall under the ambit of "betting and gambling."

2. Allegation of Colorable Exercise of Legislative Power:
The petitioners claimed that the enactment of the State Act was a colorable exercise of legislative power, aiming to reintroduce a tax on lottery tickets after it was previously deemed unconstitutional.

The court found no merit in this argument, stating that the legislative competence of the State legislature under Entry 62 of List II was clear. The court emphasized that the tax was levied on the lottery schemes and not on the sale of lottery tickets, with the draw being used merely as a measure of tax.

3. Extra-Territorial Application of the Law:
The petitioners argued that the State Act had an extra-territorial application as it sought to levy tax on lottery schemes formulated and conducted outside Maharashtra.

The court dismissed this argument, clarifying that the tax was levied on betting and gambling within Maharashtra, with the measure of tax depending on the type of lottery draw (weekly, monthly, bumper). The court asserted that the tax was not imposed on the draw itself but on the betting and gambling activities within the state.

4. Vagueness of the Term "Lottery Scheme" and Violation of Article 14:
The petitioners contended that the term "lottery scheme" was not defined in the Act, making the tax levy vague and violative of Article 14 of the Constitution, which guarantees equality before the law.

The court rejected this contention, stating that the term "lottery" was defined in Section 2(d) of the Act as a scheme for the distribution of prizes by lot or chance. The court found no vagueness in the Act's provisions and concluded that the absence of a specific definition for "scheme" did not render the tax levy vague.

Conclusion:
The court found no substance in the petitions and upheld the constitutional validity of the Maharashtra Tax on Lotteries Act, 2006. The petitions were dismissed, and the rule was discharged with no order as to costs.

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