1999 (5) TMI 498 - SC - VAT and Sales Tax

What is the character of State lotteries? If lotteries are gambling in nature, does it lose its character as such when it takes on the cloak of State lotteries? Whether such cloak dissolves its character as res extra commercium? Held that - In view of the findings recorded holding lotteries organised by the State is also gambling in nature. Thus, State lotteries cannot be construed to be a trade and business within the meaning of articles 301 to 303 of the Constitution of India. We also hold that the impugned provisions are not violative of article 14 nor the delegation of power by the Parliament to the State Government could be said to be delegation of its any essential legislative power or a delegation, which is unguided or unbridled. Thus, we uphold section 5 and various sub-clauses of section 4 to be valid piece of legislation. Accordingly, the decision of the Gauhati High Court which holds the provisions of the Ordinance to be ultra vires and consequently staying the provisions of the impugned Act cannot be sustained which is hereby quashed. Any decision of any court or any interim order contrary to the decision, as aforesaid, are hereby set aside. The various petitions which have been transferred and which are subject-matter of decision, as aforesaid, stand disposed of in terms of this decision.

Summary

Issues Involved:
1. Nature and character of State lotteries.
2. Whether State lotteries are res extra commercium or trade and commerce.
3. Constitutionality of the Lotteries (Regulation) Act, 1998, particularly Section 5.
4. Discrimination between State lotteries and Bhutan lotteries.
5. Delegation of power to States under Section 5.
6. Validity of specific conditions under Section 4 of the Act.

Issue-wise Detailed Analysis:

1. Nature and Character of State Lotteries:
The Supreme Court examined the nature and character of lotteries, recognizing them as a form of gambling. The judgment emphasized that lotteries, whether private or state-organized, inherently involve chance without skill, making them gambling activities. The Court referred to historical and legal perspectives, including ancient texts and decisions from other jurisdictions, to support this view. The judgment concluded that lotteries are pernicious in nature and remain within the realm of gambling, even when organized by the state.

2. Whether State Lotteries are Res Extra Commercium or Trade and Commerce:
The Court held that gambling activities, including lotteries, are res extra commercium and do not qualify as trade or commerce under Article 301 of the Constitution. The judgment cited the RMDC case, which established that gambling activities are outside the scope of trade and commerce. The Court emphasized that the constitutional makers could not have intended to raise gambling to the status of trade or commerce protected under Article 19(1)(g) or Article 301.

3. Constitutionality of the Lotteries (Regulation) Act, 1998, Particularly Section 5:
Section 5 of the Act, which allows states to prohibit the sale of lottery tickets organized by other states, was challenged as discriminatory and arbitrary. The Court upheld the constitutionality of Section 5, interpreting it to mean that a state can only prohibit the sale of other states' lotteries if it does not run its own lotteries. This interpretation ensures that the delegation of power is not unbridled and is guided by the principle of non-discrimination.

4. Discrimination Between State Lotteries and Bhutan Lotteries:
The judgment addressed the issue of discrimination between state lotteries and Bhutan lotteries. It was argued that the Act imposes restrictions on state lotteries but not on Bhutan lotteries. The Court clarified that Bhutan lotteries are subject to the laws of the states under Entry 34, List II, and are not privileged over state lotteries. The treaty with Bhutan stipulates that Bhutan lotteries are subject to relevant laws in India, eliminating any perceived discrimination.

5. Delegation of Power to States Under Section 5:
The Court examined whether the delegation of power to states under Section 5 amounted to excessive delegation without guidelines. The judgment concluded that the delegation is valid, as it is guided by the principle that a state can only exercise this power if it does not run its own lotteries. This interpretation ensures that the delegation is not arbitrary and is within the legislative framework.

6. Validity of Specific Conditions Under Section 4 of the Act:
The conditions under Section 4, including the location of the draw within the state (Section 4(g)), were challenged as unreasonable and arbitrary. The Court upheld the validity of these conditions, emphasizing that they are necessary to regulate the conduct of state lotteries and ensure transparency and fairness. The judgment rejected the argument that these conditions are unconstitutional, affirming that they do not violate any constitutional provisions.

Conclusion:
The Supreme Court upheld the constitutionality of the Lotteries (Regulation) Act, 1998, including Sections 4 and 5. The judgment clarified that state lotteries are gambling activities and do not qualify as trade or commerce under Article 301. The delegation of power to states under Section 5 was found to be valid and guided by the principle of non-discrimination. The Court rejected the challenges based on discrimination and excessive delegation, affirming the regulatory framework established by the Act.