2018 (11) TMI 287 - HC - VAT and Sales Tax

Vires of Maharashtra Tax on Lotteries Act, 2006 - seeking restrain from levying and/or collecting tax on sale of lottery tickets in State of Maharashtra - Held that - The term lottery has been defined under the Lotteries (Regulation) Act 1998 to mean a scheme, in whatever form and by whatever name called for distribution of prize by lot or chance to those persons participating in the chance, of a prize by purchasing tickets. When the Maharashtra Value Added Tax 2002 repealed the Bombay Sales Tax Act, the lottery tickets were excluded from the purview of said enactment. In the mean while, the Lotteries Regulation Act, 1998 came to be enacted by the Parliament to regulate the lotteries and to provide for matters connected therewith and incidental thereto. The said enactment prohibited the State Government from organizing, conducting or promoting a lottery. Section 4 of the said enactment authorized the State Government to organize, conduct or promote the lottery subject to the conditions stipulated therein. Section 5 of the said enactment authorized the State Government to prohibit the sale of tickets of a lottery organized, conducted or promote by every other State, meaning thereby that it empowered the State to forbid within its territorial limit, sale of lottery tickets of any other State. The said power under Section 5 of the Act resulted into several States prohibiting sale of tickets of other States and was subject matter of Writ Petitions in various High Courts. The said writ petitions ultimately were brought to the Hon'ble Apex Court wherein the Court was called upon to adjudicate the issue as to what is the character of State lotteries ? And if such lotteries are gambling in nature, does it lose its character as such when it takes on the cloak of State lotteries and whether it sheds its character as res extra commercium. The Hon'ble Apex Court in the case of SUNRISE ASSOCIATES VERSUS GOVT. OF NCT OF DELHI ORS. 2006 (4) TMI 118 - SUPREME COURT OF INDIA , considered the whole gamut of sale of lottery tickets in India, both private and State and examined the issue in the backdrop of the accepted position that basically lotteries are gambling and its business is res extra commercium and to shed off this in the interest of State, Revenue has been finding avenue to legitimise it through some legitimization under the law to eliminate the impediment in collecting the State Revenue and dilute, if possible, the exploitation of people - On a detail analysis of the entire business of Lottery carried out by private or by State, the Hon'ble Apex Court by keeping in mind the illimpact of the lotteries of the public at large in the country as well across the globe, took note of the fact that some permitted and protected lottery transactions under the garb of benefit for charitable purposes or augmenting State Revenues has always found its foundation in the Indian scenario. The State of Maharashtra enacted Act No.53 of 2006 to provide for levy and collection of tax on the lotteries and the matter connected therewith or incidental thereto. The said enactment was brought in force to provide for levy and collection of tax on lotteries of the State as well as lotteries of other States, conducted as per provisions of the Lotteries (Regulation) Act 1991 and which was marketed in the State of Maharashtra. The term Lottery was assigned the same meaning as assigned in the Lotteries (Regulation) Act 1998. The Division Bench in the case of N.V. Marketing Pvt. Ltd Vs. State of Maharashtra and ors 2009 (8) TMI 1242 - BOMBAY HIGH COURT concluded that the power to tax in relation to the subject clearly mentioned in List II Entry 62 of Seventh Schedule of the Constitution and the same would not be available to be exercised by the Parliament relying upon residuary Entry i.e. Entry 97, specifically when Entry 62 of List II of Seventh Schedule specifically empowers the State Legislature to impose tax in relation to lotteries because admittedly lotteries are included within the ambit of the term betting . With the aforesaid reasoning, the Division Bench concluded that the said enactment was perfectly within the legislative competence of the State Legislature in light of the specific entry traceable in the State list relating to taxation and rejected the challenge as to the competence of the State legislature - there are no error in the observations of the Division Bench which is based on the foundation that since lottery is gambling, Entry 62 of List II gets attracted. The intention of the Parliament in introducing Section 5 in the said enactment is very apparent It authorizes the State Government to prohibit the sale of tickets of a lottery organized, conducted or promoted by every other State. Resultantly, the State Government is empowered to prohibit or restrict within its State the sale of lottery tickets of any other State. The State has invoked Entry 62 of List II while enacting the impugned legislation. This entry specifically empowers the State to tax on betting and gambling. Though the learned Senior counsel made a serious attempt to submit before us that a presumption that lottery is betting and gambling, is erroneous but once the Division Bench of this Court had fallen back on Entry 62 of List II, we do not find any error in the said conclusion. There are no flaw in the observation of the Division Bench when it proceeds to hold that lottery falls within the purview of betting and therefore, Entry 62 List II is invoked by the State Legislature to enact a law imposing tax on betting and gambling. It is thus declared that the Maharashtra Tax on Lotteries Act 2006 is well within the legislative competence of the State legislature - petition dismissed.

Summary

Issues Involved:
1. Constitutionality of the Maharashtra Tax on Lotteries Act, 2006.
2. Legislative competence of the State Legislature to enact the impugned legislation.
3. Alleged discriminatory nature of the tax imposed by the State of Maharashtra.
4. Whether the tax levied is a colorable exercise of legislative power.
5. Nexus between the charging event and the measure of tax.

Comprehensive, Issue-Wise Detailed Analysis:

Constitutionality of the Maharashtra Tax on Lotteries Act, 2006:
The petitioner, a sub-distributor of state-organized lotteries, challenged the Maharashtra Tax on Lotteries Act, 2006, claiming it was ultra vires the Constitution. The petitioner argued that the Act was an indirect attempt to restrict or prohibit the sale of lottery tickets from other states, which the state could not do directly. The court noted that the challenge was already covered by a previous judgment in N.V. Marketing Pvt. Ltd Vs. State of Maharashtra, which upheld the Act's constitutionality.

Legislative Competence of the State Legislature:
The petitioner argued that lotteries fall under the Union List and only Parliament has the power to legislate on this subject. The petitioner cited the Lottery Regulation Act, 1998, which regulates state-organized lotteries and offers security to purchasers. The court examined whether the Maharashtra legislature had the competence under Entry 62 of List II to impose taxes on lotteries. The court concluded that lotteries are a form of betting and gambling, which fall under Entry 62, thus validating the state's legislative competence to enact the law.

Alleged Discriminatory Nature of the Tax:
The petitioner contended that the tax was discriminatory as it targeted lotteries from other states while Maharashtra continued to run its own lotteries. The court found no merit in this argument, noting that the tax was applied uniformly to all lottery schemes, whether organized by Maharashtra or other states. The court held that the Act did not violate Article 14 of the Constitution.

Whether the Tax Levied is a Colorable Exercise of Legislative Power:
The petitioner argued that the tax was a colorable exercise of legislative power, aimed at prohibiting the sale of lottery tickets from other states. The court disagreed, stating that the tax was a legitimate exercise of the state's power to tax betting and gambling under Entry 62 of List II. The court emphasized that the Act was not a disguised attempt to achieve an impermissible objective.

Nexus Between the Charging Event and the Measure of Tax:
The petitioner claimed that the tax had no nexus with the charging event and was arbitrary. The court held that the tax was levied on the lottery scheme itself, not on individual ticket sales, and that the measure of the tax was clearly defined in the Act. The court found that the tax was neither arbitrary nor violative of Article 14.

Conclusion:
The court upheld the Maharashtra Tax on Lotteries Act, 2006, as a valid piece of legislation within the legislative competence of the state. The court dismissed the petition, declaring that the Act did not violate any constitutional provisions and was not a colorable exercise of legislative power. The court reaffirmed that the tax was applied uniformly and had a clear nexus with the charging event. The petition was dismissed with no order as to costs.