2007 (6) TMI 559 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legislative competence of the State to levy tax on lotteries.
2. Validity of Section 6 of the Act concerning extra-territorial operation.
3. Vagueness and enforceability of the statute.
4. Levy of tax in advance of the draw.
5. Allegation of the Act being a colorable legislation.
6. Discrimination and arbitrariness in the increase of tax rate.
7. State's authority to legislate on lotteries of other States.

Summary:

1. Legislative Competence of the State to Levy Tax on Lotteries:
The petitioners challenged the legislative competence of the State to levy tax on lotteries, arguing that the subject is covered by Central legislation u/s Entry 40 of List I of the 7th Schedule to the Constitution of India. The court referred to the Supreme Court decision in M/S.B.R.ENTERPRISES V. STATE OF U.P. (AIR 1999 SC 1867), which classified lottery as "gambling." The court upheld that tax on lottery is covered by Entry 62 of the State List, which authorizes the State to levy taxes on "gambling." The court concluded that the impugned Act is a valid piece of legislation enacted under Entry 62 of the State List.

2. Validity of Section 6 of the Act Concerning Extra-Territorial Operation:
The petitioners contended that the levy of tax on the "draw" taking place outside the State is beyond the State's territorial jurisdiction. The court examined Sections 2(l), 6, and 7 of the Act and concluded that the activity attracting tax is the conduct of lotteries, which involves the sale of lottery tickets within the State. The court held that the Act does not have extra-territorial operation and rejected this contention.

3. Vagueness and Enforceability of the Statute:
The petitioners argued that the provisions of the Act are vague and incapable of implementation. The court noted that the second petitioner had taken registration as a promoter and paid tax for two years, demonstrating that the statute is free from vagueness. The court rejected this contention.

4. Levy of Tax in Advance of the Draw:
The petitioners contended that the tax is levied in advance of the draw, which is unauthorized. The court held that the draw is only the method for selecting the winner, and the gambling activity starts with the sale of tickets. The court concluded that the provision for advance collection of tax is valid and rejected this argument.

5. Allegation of the Act Being a Colorable Legislation:
The petitioners argued that the Act is a colorable legislation to levy tax on the sale of lottery tickets. The court noted that the Act levies tax on every draw at a specific rate, unrelated to the sale of lottery tickets. The court rejected this contention.

6. Discrimination and Arbitrariness in the Increase of Tax Rate:
The petitioners alleged discrimination and arbitrariness in the increase of the tax rate from Rs. 2.5 lakhs to Rs. 5 lakhs per draw. The court found that the Kerala State Lottery Department complied with the statutory provisions and paid the tax. The court concluded that the revised tax rate is acceptable and rejected the allegation of discrimination.

7. State's Authority to Legislate on Lotteries of Other States:
The petitioners argued that the State cannot make any law on lotteries of other States and that its executive power under Article 298 of the Constitution does not extend beyond its territorial jurisdiction. The court held that the tax on lotteries is a tax on gambling and does not regulate or interfere with the right of another State to conduct lottery business. The court concluded that the State law can authorize tax on State-lottery and dismissed this argument.

Conclusion:
In view of the above findings, the Writ Petition is dismissed.