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TMI Blog2007 (6) TMI 559X X X X Extracts X X X X X X X X Extracts X X X X ..... r is registered under the Act as the Promoter of the first petitioner's paper lottery in Kerala and is remitting tax for every draw at the rate prescribed under Section 6 of the Act. Even though tax was paid without dispute for two years i.e. 2005-2006 and 2006-2007, petitioners have now filed this W.P. challenging the constitutional validity of the statute on account of the increase in rate of tax for other draws effected during this financial year. 2. I have heard Senior counsel Mrs.Nalini Chitambaram appearing for the petitioners and Senior Counsel Dr.Deviprasad Pal appearing for State of Kerala and other respondents. The main ground of challenge is that the State legislature lacks legislative competence to make any law on lotteries. The petitioners have referred to item 40 of List I of the 7th Schedule to the Constitution of India which authorises legislation on lotteries organised by the Government of India or the Government of a State . According to the petitioners, in exercise of powers under entry 40, Parliament has made the Lotteries (Regulation) Act 1998 which does not provide for any tax on lotteries including paper lotteries. Since the subject is covered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by entry 62 of the State List to the 7th Schedule to the Constitution. The next question to be considered is whether Entry 40 of the Union List in 7th Schedule stands in the way of State legislation for tax on lotteries. Senior Counsel appearing for the State has referred to the decision in STATE OF W.B. V. KESORAM INDUSTRIES LTD. (2004) 10 SCC 201, where the Supreme Court has held that power to taxation is different from power to make legislation in the form of regulation. It is specifically held by the Supreme Court in the said decision that even though taxation may be adopted as a method for regulation, the power to tax is not incidental to legislation by way of regulation. Contrary to this, petitioners have relied on Ext.P1 judgment of the Bombay High Court wherein the Bombay High Court has struck down levy of sales tax on lottery based on draw. The decision of the Bombay High Court is not applicable to the facts of this case because what the court has considered therein is levy of tax on lottery as sale of goods . Incidentally, the court held that draw of lottery cannot be treated as sale of goods for the purpose of taxation. However, in this case it is to be seen that w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay be prescribed: Provided that a person ordinarily selling lottery tickets in retail shall not be liable to get himself registered. (2) The registration may be renewed from year to year on payment of the prescribed fees and security, until it is cancelled; (3) Unless the registration is cancelled or renewed, at the expiry of the period of registration, the security may be refunded or released to the promoter after adjusting any or all amount due from him, under this Act. On going through the above provisions of the Act it is clear that Section 6 is not the sole depository of charging provisions as claimed by the petitioners. The activity that attracts tax is the conduct of lotteries which involves sale of lottery tickets prior to the draw. Under the definition clause of Promoter a person selling lottery tickets in the State of Kerala is a promoter. It is the promoter who is liable to pay tax under Section 6(2) of the Act. Section 7 provides for registration of the promoter on payment of fees and on remittance of security to the extent prescribed. Therefore, the levy of tax is not merely on the draw of the ticket which of course takes place outside the State. On the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible evasion of tax after the draw because the party can leave the State after conclusion of sale of ticket in the State. Therefore, the provision for advance collection of tax does not affect the validity of the Act. Petitioners have no case that at any time a draw for which tax is paid was cancelled. Therefore, their apprehension that taxable event may not take place for tax paid draws is out of place and is therefore rejected. 8. The next contention raised by petitioners is that the impugned Act is a colourable legislation to levy tax on sale of lottery tickets. The petitioner has referred to the decision of the Supreme Court in SUNRISE ASSOCIATES V. GOVT. OF NCT OF DELHI (2006)5 SCC 603 wherein the Supreme Court held that lottery cannot be assessed to sales tax as the transaction does not involve sale of goods. According to the petitioners, the impugned Act levies a virtual tax on sale of lottery tickets. However, respondents contended that sale of tickets or sales turnover have nothing to do with the Act and the measure of tax is solely based on every draw irrespective of as to what is the sales turnover achieved for the sale of ticket. I do not think impugned Act is colo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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