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TMI Blog2022 (3) TMI 1093X X X X Extracts X X X X X X X X Extracts X X X X ..... ce lotteries is within the ambit of betting and gambling as appearing in Entry 34 List II. (iii) The expression betting and gambling is relatable to an activity which is in the nature of betting and gambling . Thus, all kinds and types of betting and gambling fall within the subject of Entry 34 of List II. The expression betting and gambling is thus a genus it includes several types or species of activities such as horse racing, wheeling and other local variations/forms of betting and gambling activity. The subject lotteries organised by the Government of India or the Government of a State in Entry 40 of List I is a Union subject. It is only lotteries organised by the Government of India or the Government of State in terms of Entry 40 of List I which are excluded from Entry 34 of List II. In other words, if lotteries are conducted by private parties or by instrumentalities or agencies authorized, by Government of India or the Government of State, it would come within the scope and ambit of Entry 34 of List II. (iv) Thus, the State legislatures are denuded of their powers under Entry 34 of List II only to the extent of lotteries organised by the Government of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that the respective State Legislatures had no legislative competence to impose tax on the lotteries conducted by other States in their State (in the State of Karnataka and Kerala respectively). The appeals filed by the State of Karnataka and State of Kerala and others are allowed. - CIVIL APPEAL NOS.10466-10476 OF 2011 CIVIL APPEAL NOS.101-102 OF 2012 CIVIL APPEAL NO.911 OF 2021 CIVIL APPEAL NOS.869-870 OF 2022 CIVIL APPEAL NO.871 OF 2022 - - - Dated:- 23-3-2022 - M.R. SHAH And B.V. NAGARATHNA , JJ. For the Appellant : Mr. Shubhranshu Padhi, AOR Mr. Pallav Shishodia, Sr. Adv. Mr. C. K. Sasi, AOR Mr. Abdullah Naseeh, Adv. Ms. Meena K.P, Adv. For the Respondent : Mr. Avijit Mani Tripathi, AOR Mr. Upendra Mishra, Adv. Mr. T. K. Nayak, Adv. Mr. K. V. Khalyngdoh, Adv. Mr. Siddhartha Chowdhury, AOR Mr. Vivek Kolhi, Adv. Gen. Mr. Sameer Abhyankar, AOR Ms. Yeshi Rinchhen, Adv. Mr. Kumar Ajit Singh, Adv. Mr. Abhinav Mishra, Adv. Ms. Nishi Sangatani, Adv. Ms. Rohini Musa, AOR . Mr. Bhargava V. Desai, AOR Mr. Utkarsh Vats,Adv M/s. Arputham Aruna And Co, AOR Mrs. Gurkamal Hora, Adv. Mr. Amit Bhatnagar, Adv. Mr. Subodh Pandey, Adv. Mr. Abhishek Sharma, Adv. Ms. Tatini Basu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and proof and a direction was issued to the State of Kerala to pass appropriate orders making refund of the amounts due based on evaluation of such proof, without any delay. 3. Being aggrieved, the States of Karnataka, Kerala and others are in appeal before this Court. The respondents herein are the States of Nagaland, Arunachal Pradesh, Meghalaya, Sikkim, and others who are the organisers of the lotteries as well as promoters, inter alia, in the States of Karnataka and Kerala. Bird s eye view of the controversy: 4. The controversy in these cases is regarding the interpretation to be given to the expression betting and gambling in Entries 34 and 62 of List II of the Seventh Schedule of the Constitution of India. Further, whether the lotteries organised by the Government of India or Government of a State , which is a subject in Entry 40 of List I also encompasses the power to levy tax on the said lotteries? Consequently, whether under Entry 62 of List II the State Legislature is denuded of the power to levy tax on the said subject? In other words, whether the subject covered in Entry 40 of List I restricts the scope and ambit of Entries 34 and 62 of List II? If the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l incompetence of the Parliament in the area of taxation of State lotteries. Entry 34 of List II is also a regulatory entry . The said entry deals with betting and gambling, including lotteries that do not fall under the ambit of Entry 40 of List I. To the contrary, Entry 62 of List II is a specific taxing entry inter alia on gambling and betting. Learned Senior Counsel submitted that the source of taxation is Entry 62 of List II and not Entry 54 of List II and the tax is not on sale or purchase of lottery tickets. 8. It was further contended that on a conjoint reading of Section 2(4) and Section 6 of the Karnataka Act, 2004 it would indicate that the charge or tax is a tax on lotteries i.e., on the chance of those persons participating in a lottery and the chance to win a prize in a lottery, which comes within the nomenclature of gambling. The measure of taxation, in case of a bumper draw is ₹ 1,50,000/- and in case of any other draw is ₹ 1,00,000/-. 9. Learned Senior Counsel further referred to Paragraph 6 of Govind Saran Ganga Saran vs. Commissioner of Sales Tax [AIR 1958 SC 1041] to state that when the source of taxation and occurrence of taxable event, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce nor the protection under Article 301 dealing with inter-state trade, commerce and business, even if the State happens to be the operator, as was held in the cases of R.M.D. Chamarbaugwala (supra) and B.R. Enterprises vs. State of Uttar Pradesh [(1999) 9 SCC 700]. Submissions on behalf of State of Kerala: 13. Sri Pallav Shishodia, learned Senior Counsel appearing for the appellant-State of Kerala, adopted the submissions made by learned Senior Counsel for the State of Karnataka. He made the following additional submissions: He submitted that under the Kerala Act, 2005 and the Rules made thereunder, the respondents were liable to pay the tax in advance before any draw, under Section 10 thereof. The respondents herein in fact filed a writ petition seeking a writ of mandamus against the appellant-State of Kerala directing them to accept advance tax. In addition, a companion petition was filed challenging Section 10 of the aforesaid Act which was decided by the learned Single Judge of the High Court of Kerala on 10th January, 2007 and thereafter affirmed by the Division Bench on 30th March, 2007. The matter came up to this Court and vide Order dated 16th July, 2014 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) Contentions pertaining to the exigencies faced by North-Eastern States in generating revenue. 17. Sri. C. Aryama Sundaram, learned Senior Counsel, supported the judgment of the High Court of Karnataka and contended that the State of Karnataka had no legislative competence to impose tax on the lotteries organised by the Governments of the Respondents-States. It was submitted that lotteries organised by the Government of India or by the Government of any State, fall within the ambit of Entry 40 of List I and therefore any legislation pertaining to such lotteries may only be enacted by the Parliament. 18. It was next contended that lotteries organised by the Government of India or by the Government of any State, were not within the legislative fields covered under Entries 34 or 62 of List II which pertain to the power of the State Legislature to make laws to regulate betting and gambling and to impose taxes on luxuries, including taxes on entertainment, amusements, betting and gambling, respectively. That although the expression betting and gambling may be construed as the genus, within which lotteries is a species, the specific field of lotteries organised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 62 of List II and only observe that State organised lotteries were specifically taken out of the ambit of Entry 34 of List II, betting and gambling as appearing in both these entries must be construed in a similar manner; i.e. that they are inclusive only of those lotteries which are organised other than by the Government of India or by the Government of any State. In this regard, Jindal Stainless Ltd. vs. State of Haryana [2017 (12) SCC 1] was pressed into service to contend that the same expression, if used in different entries in the same List, would have the same meaning. Therefore, although State organised lotteries have specifically been carved out of the expression betting and gambling as appearing in Entry 34 of List II, it may be deemed that betting and gambling as appearing in Entry 62 of List II is also not inclusive of State organised lotteries. 21. It was further urged in this regard that if Entry 34 of List II is a general entry which deals with the regulatory power of the State Legislature in the area of betting and gambling , Entry 62 of List II vests a more specific power of taxation over betting and gambling with the State Legislature. Once it has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to enact such statute could not be traced to Entry 62 of List II. The said Entry deals with the power to impose taxes on luxuries, including taxes on entertainment, amusements, betting and gambling. The event or incidence for imposition of such tax would be either the conduct of lotteries or the sale and purchase of lottery tickets. That by enacting the impugned Act, what the State Legislature sought to tax was the sale of lottery tickets, which was not permissible in light of the decision of this Court in Sunrise Associates vs. Government of Delhi [(2006) 5 SCC 603]. In the said case, it was held that lottery tickets were not goods within the meaning of the Sales Tax Act and therefore they cannot be subject to sales tax. That the impugned Act, in a clandestine manner, sought to impose sales tax on the sale of lottery tickets which is not permissible. 24. In support of the said contention, the statement of objects and reasons of the impugned Act was referred to, which provides that it has been enacted with an intention to regulate the actual number of draws held by any lottery promoter. It was submitted that while the statement of objects and reasons has been worded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) of the Constitution of India to contend that a State Government has the power to enact laws for the State or any part thereof. A State Government does not have the power to extend its laws beyond its territorial limits. If a State law is allowed to operate in relation to activities which are conducted beyond its territorial limits, it would have the effect of encroaching upon the legislative power of other States. 27. Learned Senior Counsel appearing for the State of Nagaland next submitted that the decision of this Court in R.M.D. Chamarbaugwala (supra) relied upon by the appellants would not come to their aid in the instant case. That in the said case, several activities, such as the sale and distribution of forms for the lottery and prize competitions, the collection of entry fees, publication of advertisements pertaining to the lottery and prize competitions, were all conducted within the State of Bombay and it was in that context that this Court held that the State of Bombay possessed legislative competence to enact the Bombay Lotteries and Prize Competitions Control and Tax Act, 1948 which sought to control and levy tax on lotteries and prize competitions in the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals. Submissions on behalf of State of Sikkim: 31. Sri S.K. Bagaria, learned Senior Counsel appearing for the State of Sikkim, First Respondent in Civil Appeal No. 911 of 2021, adopted the contentions advanced by Sri Aryama Sundaram, learned Senior Counsel appearing on behalf of the State of Nagaland in Civil Appeal No. 10467 of 2011. He further elaborated on the submissions as regards the exclusion of the species of lotteries from the genus of betting and gambling as appearing in Entries 34 and 62 of List II vide H. Anraj (supra) and M/s Suman Enterprises (supra). He contended that although the decision of this Court in H. Anraj (supra) excluded lotteries from the legislative field of the State Legislature while examining Entry 34 of List II and no reference was made in the said judgment to Entry 62 of List II, it may be construed that lotteries organised by the Government of India or the Government of a State are not included within the expression betting and gambling appearing in Entry 34 as well as Entry 62 of List II. In support of this contention, reference was made to a decision of this Court in R.M.D. Chamarbaugwala (supra) wherein a co-relation was es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from such definition as to the chargeability or the taxing event. It was further urged that Section 7(1) and 8(1) of the Act mandatorily require that any promoter involved in the sale of lottery tickets be registered under the Act and file returns. Section 8(2) imposes the liability of tax on a promoter who has registered and filed returns under Section 7(1) and 8(1) of the Act. In this regard it was submitted that it is the promoter, who is involved in the sale of the tickets, who is required to bear the burden of tax and therefore, what the State Government has done is to levy sales tax on the sale of paper lotteries in Kerala, which is impermissible in light of the decision of this Court in Sunrise Associates (supra). That in the absence of any clarity in the charging provision as to what would be the taxable event and on a conjoint reading of Section 7 and 8 of the impugned Act, the only deduction that could be made would be that the event taxed was the sale of lotteries. 34. In reply to the contention advanced on behalf of the State of Kerala, to the effect that the burden of tax imposed on the State of Sikkim was being passed on to the consumer and therefore, the State o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les of federalism and inter-governmental immunity. In this regard, reliance was placed on New Delhi Municipal Council vs. State of Punjab [(1997) 7 SCC 339] wherein this Court, after discussing the principle of inter-governmental immunity as it operates in the United States of America, held that the said principle would operate in India as well, although to a limited extent. In the Indian context, the immunity conferred on the Union, from any action of the State, is absolute; while immunity to States from the actions of the Union is as per Article 289 of the Constitution. It was submitted in this regard that the impugned Legislations seek to impose interest and penalties on the Union for non-payment of taxes levied on it and also prescribes withholding monies due to the Union in order to recover the tax due. That such provisions of the statute pose a threat to the principle of inter-governmental immunity, which is well recognised and currently operating in India. 38. Learned Senior Counsel appearing for the State of Meghalaya urged that the doctrine of pith and substance and the aspects theory have no relevance to the instant matter. That the doctrine of pith and substance is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate of Meghalaya in respect of Article 246(1) that under the said provision, Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I and therefore, Entry 40 of List I is good enough to include power of taxation on lotteries organised by Central or State Governments, it was urged that the said provision cannot be read in insolation. He submitted that List I and II vest exclusive powers in Union and States respectively and therefore one cannot be read in insolation to the other. 42. It was further submitted that the Constitution Bench in RMDC vs. State of Mysore (supra) had clearly stated that the surrender of a regulatory or any other power to the Union cannot mean a surrender of the taxation power. Taxing powers are always identified independently and unless such power is transposed, denuded or mutilated, it cannot be read by implication as held in M.P.V. Sundararamier (supra). 43. In respect of the submission relating to Article 289, Sri Venkataraman pointed out that there is a Constitutional bar against the Union taxing the Income of a State, and the same cannot be taxed by virtue of Article 289. He stated that any activity cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two separate and distinct fields of legislation, the width of legislative power of States to tax State organised lotteries under Entry 62 of List II cannot be curtailed by regulatory powers of Centre under Entry 40 of List I even though only regulatory powers of states to regulate State organised lotteries are taken out from Entry 34 of List II. 48. To buttress his contention, learned Senior Counsel for the State of Kerala referred to Chapter 5, Subsidiary Rules in Principles of Statutory Interpretation authored by Justice GP Singh under the heading Same Word Same Meaning . He contended that it is a settled principle of interpretation that the same expression can have different meanings in the same statute or even the same provision, if the context so required. Learned Senior Counsel cited the case of Maharaj Singh vs. State of UP [1977 (1) SCC 155] in this behalf. 49. It was further urged that the respective contexts of the expression betting and gambling under Entry 34 and Entry 62 both in List II are very different. Entry 34 of List II describes the legislative field of regulatory powers of the State over betting and gambling while Entry 62 of List II describes the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s within the ambit of Entry 62 of List II? (iii) Whether the impugned Acts passed by the Karnataka and Kerala State Legislatures are within the legislative competence of Entry 62 of List II, and are therefore valid pieces of legislation? (iv) What order? Constitutional Scheme 54. For easy and immediate reference, the following provisions of the Constitution of India are extracted as under : 245. Extent of laws made by Parliament and by the Legislatures of States (1) Subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the territory of India, and the Legislature of a State may make laws for the whole or any part of the State. (2) No law made by Parliament shall be deemed to be invalid on the ground that it would have extra territorial operation. 246. Subject matter of laws made by Parliament and by the Legislatures of States (1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the Union List ). (2) Notwithstanding anything in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th effect from 16.09.2016 which is relevant for the purpose of these cases]. Some of the salient aspects concerning the distribution of the legislative powers between the Parliament and State Legislature as per the three Lists of Seventh Schedule of the Constitution in the backdrop of provisions could be alluded to. Article 246 of the Constitution deals with the distribution of legislative powers between the Union and the States. The said Article has to be read along with the three Lists namely the Union List, the State List and the Concurrent List. The taxing powers of the Union as well as the States are also demarcated as separate Entries in the Union List as well as the State List i.e. List I and List II respectively. The Entries in the Lists are the fields of legislative powers conferred under Article 246 of the Constitution. In other words, the Entries define the areas of legislative competence of the Union and State Legislature. 55. Article 246 deals with subject matter of laws made by Parliament and by the Legislatures of States as follows : (a) Clause (1) of Article 246 states that notwithstanding anything in clauses (2) and (3) Parliament has exclusive power to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts scope and objects. It is said that the question of invasion into another legislative territory has to be determined by substance and not by degree. 57. In case of any conflict between Entries in List I and List II, the power of Parliament to legislate under List I will supersede when, on an interpretation, the two powers cannot be reconciled. But if a legislation in pith and substance falls within any of the Entries of List II, the State Legislature's competence cannot be questioned on the ground that the field is covered by Union list or the Concurrent list vide Prafulla Kumar Mukherjee vs. Bank of Commerce, Khulna - [AIR 1947 P.C. 60]. According to the pith and substance rule, if a law is in its pith and substance within the competence of the Legislature which has made it, it will not be invalid because it incidentally touches upon the subject lying within the competence of another Legislature vide State of Bombay vs. FN Balsara [AIR 1951 SC 318]. 58. In Atiabari Tea Company Ltd. vs. State of Assam [AIR 1961 SC 232], it has been observed by this Court that the test of pith and substance is generally and more appropriately applied when a dispute arises as to the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be with respect to the legislative Entry in question unless there are other constitutional prohibitions, the power would be unfettered. It would also extend to all ancillary and subsidiary matters which can fairly and reasonably be said to be comprehended in that topic or category of Legislation vide United Provinces vs. Atiqa Begum [AIR 1941 FC 16]. 62. Another important aspect while construing the Entries in the respective Lists is that every attempt should be made to harmonise the contents of the Entries so that interpretation of one Entry should not render the entire content of another Entry nugatory vide Calcutta Gas Company vs. State of West Bengal [AIR 1962 SC 1044]. This is especially so when some of the Entries in a different List or in the same List may overlap or may appear to be in direct conflict with each other, in such a situation, a duty is cast on the Court to reconcile the Entries and bring about a harmonious construction. Thus, an effort must be made to give effect to both Entries and thereby arrive at a reconciliation or harmonious construction of the same. In other words, a construction which would reduce one of the Entries nugatory or dead letter, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a State, or any operations connected therewith, or any property used or occupied for the purposes of such trade or business, or any income accruing or arising in connection therewith. Clause (2) of Article 289 states that Parliament may by law declare any trade or business or any class of trade or business to be incidental to the ordinary functions of government in which event, clause (2) of Article 289 would not apply. 67. Further, when a power is conferred on the Legislature to levy a tax, the power itself must be widely construed. It must include the power to impose a tax and select the articles or commodities for the exercise of such power. It must also include the power to fix the rate and prescribe the machinery for the recovery of tax. In imposing taxes, the Legislature can also appoint authorities for collecting taxes and may prescribe the procedure for determining the amount of tax payable by any individual and also ensure that there is no evasion of tax. All these provisions are subsidiary to the main power to levy a tax vide Khyerbari Tea Co. Ltd. vs. State of Assam [AIR 1964 SC 925]. 68. If a tax is ultra vires or unconstitutional then the party is entitled to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... List II even when regulation of an activity is provided under an Entry in List I. They are (i) M.P.V. Sundararamier (supra) and (ii) Kesoram Industries Ltd. (supra) while delving on these judgments reference would also be made to other cases cited at the Bar, particularly Synthetics and Chemicals Ltd. (supra) and Harbhajan Singh Dhillon (supra). M.P.V. Sundararamier : 72. In M.P.V. Sundararamier (supra), the petitioners were dealers carrying on business in the city of Madras (now Chennai) for the sale and purchase of yarn, and they had filed petitions under Article 32 of the Constitution before this Court for the issuance of a writ of prohibition or any other appropriate writ restraining the erstwhile State of Andhra Pradesh from taking proceedings for imposing tax on certain sales effected by them in favour of merchants who were residing or carrying on business in what was the erstwhile State of Andhra Pradesh, on the ground, inter alia, that the said sales were made in the course of inter-State trade, and that no tax could be levied on them by reason of the prohibition contained in Article 286(2) of the Constitution. One of the questions considered in the said case was, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enacting Entry 42 of List I the Constitution makers could have included the power to tax on inter-State sales instead of leaving that to be inferred by construction of Entry 42 of List I in light of the Commerce Clause under the American Constitution. While saying so in paragraph 51, it was observed as follows : 51. In List I, Entries 1 to 81 mention the several matters over which Parliament has authority to legislate. Entries 82 to 92 enumerate the taxes which could be imposed by a law of Parliament. An examination of these two groups of Entries shows that while the main subject of legislation figures in the first group, a tax in relation thereto is separately mentioned in the second. Thus, Entry 22 in List I is Railways , and Entry 89 is Terminal taxes on goods or passengers, carried by railway, sea or air; taxes on railway fares and freights . If Entry 22 is to be construed as involving taxes to be imposed, then Entry 89 would be superfluous. Entry 41 mentions Trade and commerce with foreign countries; import and export across customs frontiers . If these expressions are to be interpreted as including duties to be levied in respect of that trade and commerce, then Entry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cheme of the entries in the Lists, taxation is regarded as a distinct matter and is separately set out. (3) Article 286(2) proceeds on the basis that it is the States that have the power to enact laws imposing tax on inter-State sales. It is a fair inference to draw from these considerations that under Entry 54 in List II the States are competent to enact laws imposing tax on inter-State sales. 76. It was also observed that the said conclusion was a construction of the statutory provisions having a bearing in the said case, without reference to the Sixth Amendment to the Constitution which had proceeded on the view that the States had the power to tax inter-State sales under Entry 54 of List II. Therefore, the Constitution was amended to vest the power to tax inter-State sales with the Centre. Kesoram Industries Ltd. 77. In this case, the controversy centered around Entries 52, 54 and 97 of List I and Entries 23, 49, 50 and 66 of List II and also the extended purport of the residuary power of legislation vested in the Union of India. The judgment dealt with the imposition of levies on coal, tea, brick-earth and minor minerals. While dealing with the aforesaid Entries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... field with respect to one of the matters enumerated in the Concurrent List and a direct conflict is seen. If there is a repugnancy due to overlapping found between List II on the one hand and List I and List III on the other, the State law will be ultra vires and shall have to give way to the Union law. (3) Taxation is considered to be a distinct matter for purposes of legislative competence. There is a distinction made between general subjects of legislation and taxation. The general subjects of legislation are dealt with in one group of entries and power of taxation in a separate group. The power to tax cannot be deduced from a general legislative entry as an ancillary power. (4) The entries in the lists being merely topics or fields of legislation, they must receive a liberal construction inspired by a broad and generous spirit and not in a narrow pedantic sense. The words and expressions employed in drafting the entries must be given the widest-possible interpretation. This is because, to quote V. Ramaswami, J., the allocation of the subjects to the lists is not by way of scientific or logical definition but by way of a mere simplex enumeratio of broad categories. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her observed that where a power is with the Union to regulate and control, such power of the Union cannot result in depriving the States of their power to levy tax or fee within its legislative competence without trenching upon the field of regulation and control. Thus, there is a distinction between power to regulate and control and power to tax, the two being distinct. 78. While examining the scheme underlying the Seventh Schedule of the Constitution, reliance was placed on M.P.V. Sundararamier (supra) and it was observed as under:- 74(3). Taxation is not intended to be comprised in the main subject in which it might on an extended construction be regarded as included, but is treated as a distinct matter for purposes of legislative competence. And this distinction is also manifest in the language of Article 248 clauses (1) and (2) and of Entry 97 in List I of the Constitution. Under the scheme of the entries in the lists, taxation is regarded as a distinct matter and is separately set out. 79. Further, the entries in List I and List II must be construed if possible, so as to avoid conflict. If there appears to be a conflict between Entries of List I and List II, what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y power to tax is clearly mentioned in List II, the same would not be available to be exercised by the Parliament based on the assumption of residuary power. 83. In fact, the judgment in Harbhajan Singh Dhillon (supra) was by a majority of 4 : 3 to the effect, that the power to legislate in respect of a matter does not carry with it a power to impose a tax under our constitutional scheme. Thus, there is nothing like an implied power to tax. The source of power which does not specifically speak of taxation cannot be so interpretated by expanding its width as to include therein the power to tax, by implication or by necessary inference. Reliance was also placed on Cooley on Taxation to the following effect : There is no such thing as taxation by implication. The burden is always upon the taxing authority to point to the act of assembly which authorizes the imposition of the tax claimed. Thus, the power to tax is not an incidental power. Although legislative power includes incidental and subsidiary power under a particular Entry dealing with a particular subject, the power to impose a tax is not such a power which could be implied under our Constitution. Therefore, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is separate and distinct from the power of taxation and so are the two fields for purposes of legislation. Taxation may be capable of being comprised in the main subject of general legislative head by placing an extended construction, but that is not the rule for deciding the appropriate legislative field for taxation between List I and List II. As the fields of taxation are to be found clearly enumerated in Lists I and II, there can be no overlapping. There may be overlapping in fact but there would be no overlapping in law. The subject-matter of two taxes by reference to the two lists is different. Simply because the methodology or mechanism adopted for assessment and quantification is similar, the two taxes cannot be said to be overlapping. This is the distinction between the subject of a tax and the measure of a tax. (3) The nature of tax levied is different from the measure of tax. While the subject of tax is clear and well defined, the amount of tax is capable of being measured in many ways for the purpose of quantification. Defining the subject of tax is a simple task; devising the measure of taxation is a far more complex exercise and therefore the legislature has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 3 of the said Act prohibits a State Government from organising, conducting or promoting any lottery except subject to the conditions provided under Section 4 of the Act. Section 4 prescribes the conditions under which a State Government may organise, conduct or promote a lottery. There are ten conditions prescribed under Section 4 of the Act. Section 4 is extracted as under for felicity of reference: 4. Conditions subject to which lotteries may be organised, etc.-A State Government may organise, conduct or promote a lottery, subject to the following conditions, namely:- (a) prizes shall not be offered on any pre-announced number or on the basis of a single digit; (b) the State Government shall print the lottery tickets bearing the imprint and logo of the State in such manner that the authenticity of the lottery ticket is ensured; (c) the State Government shall sell the tickets either itself or through distributors or selling agents; (d) the proceeds of the sale of lottery tickets shall be credited into the public account of the State; (e) the State Government itself shall conduct the draws of all the lotteries; (f) the prize money unclaimed with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x on Lotteries Act, 2004 is an enactment to levy tax on lottery scheme as per Section 6 of the said Act. The tax is levied at the following rates namely: (a) Rupees one lakh and fifty thousand for every bumper draw; and (b) Rupees one lakh in respect of any other draw. 91. The said tax is to be paid by every promoter. The Karnataka Act, 2004 defines the expression lottery in Sub-Section 4 of Section 2 to mean a scheme, in whatever form and whatever name called for distribution of prizes by lot or chance to those persons participating in the chance of a prize by purchasing tickets organised by the Government of India or the Government of a State or a Union Territory or any other country having bilateral agreement or treaty with the Government of India. The definition of the expression lottery would indicate that the object and purpose is of levying the tax on a lottery scheme is only when the lottery scheme is organised by the Government of India or the Government of a State or a Union Territory or any other country having bilateral agreement or treaty with the Government of India. Thus, this Act does not levy any tax on lotteries conducted by any private entities. Sub-Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 6 of the Act. The Act provides for the following two rates, applicable based on the nature of the draw: (a) Ten lakh rupees for every bumper draw; (b) Two lakh fifty thousand rupees in respect of any other draw. 98. The said tax is to be paid by every promoter. The terms promoter and lottery have been defined in identical terms as provided under the Karnataka Act of 2004. The Kerala Tax on Paper Lotteries Act, 2005 does not seek to tax the conduct of online lotteries, but only paper lotteries conducted within the State of Kerala. The preamble of the said Act states that it is an Act to provide for the levy and collection of tax on the conduct of paper lotteries in the State of Kerala. 99. Section 7 of the said Act requires promoters to get registered under the Act on payment of a fee and deposit of security. However, the Act does not require registration of persons who ordinarily sell lottery tickets in retail. Promoter has been defined to include the Government of India or a Government of a State or a Union Territory or any country organising, conducting or promoting a lottery, within the State of Kerala, or any person or entity appointed by the said Government or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s validity. 103. The above parameters may be identified in the impugned Acts under consideration, as follows: (i) In the context of the tax sought to be imposed by the impugned Acts, the basis of levy is the conduct of lotteries within the State of Karnataka or Kerala. In other words, the subject of taxation is the conduct of lottery schemes, by the Government of India or the Government of other States, within the State of Kerala or Karnataka. While it has rightly been stated by the learned counsel appearing on behalf of the Respondents that the conduct of lotteries involves a host of events such as formulation and notification of scheme of lotteries, printing, transportation and sale of lottery tickets etc., all these events constituting the conduct of the lotteries are ultimately for the participation of persons, within the State of Karnataka or Kerala. Therefore, the subject of tax is the conduct of lottery schemes, within the State of Karnataka or Kerala, which is enabled by the propensity of persons to participate in the lottery schemes. (ii) The measure of taxation in the instant case is the draw. The impugned legislations contemplate two kinds of draws, namely b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Legislature has no legislative powers to pass any law on the subject lotteries organised by the Government of India or the Government of a State. If such is the simplistic interpretation to be given, the matter would rest. However, that is not so. Meaning of betting and gambling and lotteries : 105. Having perused the impugned Acts and identified the parameters of taxation in the context of the said Acts, we shall now discuss the meanings of betting and gambling and, in particular, lottery as found in Entries 34 and 62 of List II and Entry 40 of List I. A. Dictionary meaning : (i) Black s Law Dictionary defines gambling to mean: The act of risking something valuable, especially money for a chance to win a prize. (ii) Similarly, in Advanced Law Lexicon, P. Ramanatha Aiyar (6th Edition) at page 612 betting and gambling has been described as follows: Putting a stake on something of value, particularly money with consciousness of risk and hope of gain on the outcome of a game or a contest, whose result may be determined by chance or accident, or on the likelihood of anything occurring or not occurring. (iii) In Words and Phrases (Permanen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport on the Social and Economic Impact of the Gambling Industry (Report of Session 2019-21), gambling is a general expression which can include different types of gambling viz., betting, gaming and lotteries. Betting is defined as making or accepting a bet on: (i) the outcome of a race, competition or other event or process; (ii) the likelihood of anything occurring or not occurring; or (iii) whether anything is or is not true. Gaming is defined as playing a game of chance for a prize . A game of chance includes: (i) A game that involves both an element of chance and an element of skill; (ii) A game that involves an element of chance that can be eliminated by superlative skill; and (iii) A game that is presented as involving an element of chance, but (iv) Does not include a sport. The Report however states that the expression gaming may not include video gaming and social gaming as such but is used in a statutory sense viz., section 6 of Gambling Act, 2005. Lotteries is defined as a type of gambling that has three essential elements : (i) Payment is required to participate; (ii) One or more prizes are awarded; and (iii) Those prizes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prize competitions as defined in the legislation impugned therein were in the nature of gambling activities. This Court examined the nature of the prize competitions and made observations as to which of them ought to be included under the category of activities of gambling nature . It was held that prize competitions which require participants to guess the solution prepared beforehand or which determine the solution by lot were of gambling nature. In a more general vein, it was highlighted that gambling activities, in their very nature include any competition wherein success does not depend to a substantial extent on skill of the participant, but on an element of chance. As regards those competitions in which prizes are offered for forecasts of the results either of a future event or an event that has occurred in the past for which the result is unknown, this Court held that the said category of competitions were also of gambling nature. This Court concluded that the activity being conducted by the respondent-promoter therein was a lottery and such activity could be regarded as gambling inasmuch as it was not a competition in which skill, knowledge and judgment were in real and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by various States, the question that arose for consideration of this Court was whether the resolutions as passed and particularly the words control and regulation of prize puzzle competitions and all other matters ancillary thereto had the effect of surrendering the whole subject of prize competitions to the Parliament i.e., every matter and power connected therewith including the power to tax. This Court held that the resolutions passed by the States vis- -vis Entry 34 of List II as per Article 252 of the Constitution, did not take away the power of the State to impose tax under Entry 62 of List II and the said power could not have been said to have been surrendered. That by passing the resolutions, the States did not surrender their power of taxation and neither was Clause (2) of Article 252 of the Constitution violated by the amendment of the Mysore Act. That the tax imposed under the Mysore Act was in exercise of the powers which the legislature possessed of imposing tax under Entry 62 of List II. In RMDC vs. State of Mysore (supra), after referring to R.M.D. Chamarbaugwala (supra), it was categorically observed as follows:- The fact that regulatory provisions have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid case, the scope of Entry 62 of List II in the context of Entry 34 of List II and Entry 40 of List I did not come up for consideration. (d) In H. Anraj vs. Government of Tamil Nadu- [(1986) 1 SCC 414] (For short, Anraj II ), the amendment introduced to the Tamil Nadu General Sales Tax Act, 1959, with effect from 28th January, 1984, whereby lottery tickets were subjected to sales tax, was assailed before this Court primarily on the ground that the Tamil Nadu State Legislature lacked legislative competence to enact such amendment. This Court considered the question as to whether sales tax could be levied by a State Legislature on the sale of lottery tickets within its territory, based on the power vested with it under Entry 54 of List II which at the time pertained to taxes on the sale or purchase of goods other than newspapers. In that background, this Court undertook an analysis of the nature of lottery tickets, with a view to determine whether they may be construed to be goods as defined under the Sale of Goods Act, the sale of which goods may be subjected to sales tax. This Court concluded that lottery tickets were goods inasmuch as they carried with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tickets either sold in retail or wholesale shall be credited to the funds of the Government. Thirdly, the draws for selecting the prize-winning tickets must be conducted by the State itself, irrespective of the size of the prize money. Fourthly, if any prize money is unclaimed or is otherwise not distributed by way of prize, it must revert to and become the property of the State Government. These, prima facie, appear to us to be the minimal characteristics of a lottery which can claim to be organised by the State. The aforesaid were said to be a minimal criteria which rendered a lottery to be eligible to be called organised by a State. Thus, a distinction was made by this Court between the said organized lottery and a lottery which is authorised by the State. Further it was observed that the Government order of Tamil Nadu impugned therein was construed to apply to lotteries organized by the States in terms of the Entry 40 of List I, while Entry 34 of List II dealt with betting and gambling . (f) The nature and character of the lotteries was again deliberated upon in B.R. Enterprises (supra) wherein it was held that lotteries are a form of gambling. However, it was con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for receiving a prize, which is by chance and the consideration is the price of the ticket. The holder of such a ticket knows that the consideration which he has paid may be for receiving nothing. However, there may be a few who are lucky to receive the prize which is just by chance. While noting that Entry 62 of List II refers to taxes on betting and gambling which inherently includes gambling, the question whether State lotteries (gambling) could still qualify to be Trade and Commerce within the meaning of Chapter XIII of the Constitution was considered. Noting that, there had been a distinction made under the Government of India Act, 1935 between State lotteries and other forms of lotteries which have been placed in different Lists and the same pattern had been followed under the Constitution, this Court made a distinction between gambling and trade and observed that gambling inherently involved an element of chance, with no skill, while trade involved skills, with no chance. That even though the State may conduct lotteries, the element of chance remains, with no skill involved and even the organisation and conduct of the lotteries by the State Government are within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 73 of the said judgment, it was observed that sale of lottery tickets organised by the State could not be construed to be trade and commerce and even if it could be so construed, it cannot be raised to the status of trade and commerce as understood in common parlance or trade and commerce as used in Article 301. Thus, it was concluded that lotteries organised by the State are also in the nature of gambling as per the principles laid down in RMDC vs. State of Mysore (supra). Therefore, the said principles would be equally applicable to State lotteries. (g) In Sunrise Associates vs. Government of NCT of Delhi - [(2000) 10 SCC 420], a decision rendered by the High Court of Delhi, following the ratio laid down in Anraj II, was challenged before this Court on the principal ground that the judgment in Anraj II required reconsideration. This Court noted that Anraj II proceeded on the view that purchase of a lottery ticket carried with it the right to participate in a draw. It however, had not taken into account that the transaction of sale of lottery tickets involved two elements which were inextricably linked to each other, namely, (i) the right to participate in a draw; and (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r memoranda evidencing the transfer of certain rights. We agree. 42. .. 43 .. 44. The question is, what is this right which the ticket represents? There can be no doubt that on purchasing a lottery ticket, the purchaser would have a claim to a conditional interest in the prize money which is not in the purchaser's possession. The right would fall squarely within the definition of an actionable claim and would therefore be excluded from the definition of goods under the Sale of Goods Act and the sales tax statutes. This was also accepted in H. Anraj [(1986) 1 SCC 414 : 1986 SCC (Tax) 190] when the Court said that to the extent that the sale of a lottery ticket involved a transfer of the right to claim a prize depending on chance, it was an assignment of an actionable claim. Significantly in B.R. Enterprises v. State of U.P. [(1999) 9 SCC 700] construing H. Anraj [(1986) 1 SCC 414 : 1986 SCC (Tax) 190] the Court said: (SCC p. 746, para 52) 52. So, we find three ingredients in the sale of lottery tickets, namely, (i) prize, (ii) chance, and (iii) consideration. So, when one purchases a lottery ticket, he purchases for a prize, which is by chance and the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods under Section 2(52) of Central Goods and Service Tax Act, 2017 (for short, CGST Act ) to the extent that actionable claims were included under goods . Consequently, notifications issued pertaining to levy of tax on lotteries were also challenged. The petitioner therein had sought a declaration that the levy of tax on lottery was discretionary and violative of Article 14, 19(1)(g), 301 and 304 of the Constitution of India. The following questions of law were taken up for consideration in the said Writ Petition:- 12. (I) Whether the writ petition is not maintainable under Article 32 of the Constitution of India since the writ petition relates to lottery, which is res extra commercium and the petitioner cannot claim protection under Article 19(1)(g)? (II) Whether the inclusion of actionable claim in the definition of goods as given in Section 2(52) of Central Goods and Services Tax Act, 2017 is contrary to the legal meaning of goods and unconstitutional? (III) Whether the Constitution Bench judgment of this Court in Sunrise Associates (supra) in paragraphs 33, 40, 43 and 48 of the judgment has laid down as the proposition of law that lottery is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Lottery, betting and gambling are well known concepts and have been in practice in this country since before independence and were regulated and taxed by different legislations. When Act, 2017 defines the goods to include actionable claims and included only three categories of actionable claims, i.e., lottery, betting and gambling for purposes of levy of GST, it cannot be said that there was no rationale for including these three actionable claims for tax purposes. Regulation including taxation in one or other form on the activities namely lottery, betting and gambling has been in existence since last several decades. When the parliament has included above three for purpose of imposing GST and not taxed other actionable claims, it cannot be said that there is no rationale or reason for taxing above three and leaving others. 71. It is a duty of the State to strive to promote the welfare of the people by securing and protecting, as effectively as it may, a social order in which justice, social, economic and political, shall inform all the institutions of the national life. The Constitution Bench in State of Bombay v. R.M.D. Chamarbaugwala (supra) has clearly stated that Consti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prize. There are really three points one must look for in deciding whether a lottery has been established: first of all, the distribution of prizes, secondly, the fact this was to be done by means of a chance and thirdly, that there must be some actual contribution made by the participants in return for their obtaining a chance to take part in the lottery. The above laid down principle shows that there should be three elements to establish a lottery such as; prize, chance and consideration. It may be noted that in the aforesaid case too, the passage reproduced below is included. A lottery is the distribution of prizes by chance where the person taking part in the operation, or a substantial number of them, make a payment or consideration in return for obtaining their chance of a prize. 109. What emerges from the discussion of the decisions of this Court referred to above is that lotteries are a species within the genus of gambling. That one of the essential features of a lottery is its inherent gambling nature, which persists irrespective of whether the lottery scheme is conducted by the Government of India, Government of a State or by a private entity. Gamblin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of taxation power of Union and the State. Thus, in substance the taxing power can be derived only from a specific taxing Entry in an appropriate List in the Seventh Schedule. Such a power has to be determined by the nature of the tax and not the measure or machinery set up by the statute. 112. At the same time, Article 265 of the Constitution which states that no tax shall be levied or collected except by authority of law, ought to be borne in mind. In the instant cases, authority of law would imply the competence of the State Legislatures of Karnataka and Kerala in enacting the impugned laws. 113. In view of the detailed discussion made above, we find that the dictum of this Court in M.P.V. Sundararamier analysing the entries in Lists I and II dealing with various subjects of legislation and entries concerning taxation being separate and distinct must be borne in mind while interpreting the impugned Acts. That is the constitutional scheme. In this regard, we reiterate what has been observed in Hoechst Pharmaceuticals Ltd., to the effect that taxation is considered to be a distinct matter for purposes of legislative competence and the power to tax cannot be deduced from the g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eventh Schedule and bearing in mind and the object and intent behind it. 116. Therefore, before approaching Entry 97 of List I which is a residuary Entry in the Union List (List I), it would be necessary to interpret the relevant taxation Entry in the State List and it is only in the absence of there being legislative competence in the relevant taxation Entry in the State List could such a power be traced to Entry 97 of List I in the residuary list provided such a power is not also traceable to any Entry in the Union List. This is because in List I itself the entries concerning taxation are separate and distinct. Such Entries are from Entries 82 to 92B and Entry 96 of List I deals with fees in respect of any of the matters in the List but not including fees taken in any court. Therefore, even in respect of any subject in any Entry in List I, the power to tax cannot be implied or read under Entry 97 of the said List which is only a residuary entry, if the same is enumerated in List II in which case it would come within the legislative competence of the State Legislature. 117. In the above backdrop, we shall now consider Entry 40 of List I and Entries 34 and 62 of List II to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... try 96 of List I. 118. But the question is, whether, while interpreting Entry 40 of List I alongside Entries 34 and 62 of List II, the power to tax lotteries organised by the Government of India or the Government of a State is also taken away from Entry 62 of List II and is to be read within the ambit of Entry 40 of List I and therefore, the States of Karnataka and Kerala in the instant cases had no legislative competence to enact the impugned Acts. We have already stated that only lotteries organised by the Government of India or the Government of a State is carved out of the subject, betting and gambling in Entry 34 of List II and is placed in Entry 40 of List I and Entry 62 of List II, inter alia, speaks of tax on betting and gambling . By that, we do not think by that the State Legislatures have been denuded of their power to levy tax under Entry 62 of List II on lotteries organised by Government of India or Government of a State. We say so for the following reasons: (a) Entry 62 of List II is a specific taxation entry on luxuries, including taxes on entertainments, amusements, betting and gambling. The expression betting and gambling would have to be read ejusdem ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntioned therein and the powers to levy a tax is conspicuous by its absence. (iii) Third, the object and purpose of Entry 62 of List II is to tax the activity of betting and gambling , whether it is conducted by a private entity or a State authorised entity or an instrumentality or agency or for that matter by the Government of India or the Government of any State. This is because irrespective of who organises a lottery scheme, it is ultimately a species of gambling. It is nobody s case that participation in a lottery scheme is not gambling. The said activity i.e. lottery scheme can be conducted throughout the territory of India provided a particular State grants permission to organise and conduct the said activity in that State. Thus, organisation and conducting of lottery can be a pan India activity of gambling and when a particular State permits a lottery scheme conducted by the Government of India or the Government of any State in that State, a tax is leviable on the same, which is a tax on gambling. Thus Entry 62 of List II empowers the State Legislatures to impose tax on gambling irrespective of who or which entity is conducting it including the Government of India or Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lative competence to levy tax on betting and gambling as a specific taxation entry is provided to levy tax on the said activity under Entry 62 of List II the said entry must be interpreted comprehensively and not in a restricted or narrow manner by excluding taxation on gambling on lottery conducted by Government of India or any Government of a State from the purview of the said Entry and read into Entry 40 of List I by implication. (viii) Eighth, such a power to levy taxes cannot be read into Entry 40 of List I by implication or into Entry 97 of List I as a residuary power. Such interpretation, if endorsed, it would do violence to the manner of interpretation of Entries in the Lists and prove to be contrary to the Articles of the Constitution and judgments of this Court cited above. (ix) Ninth, if the State Government does not permit a particular species of betting and gambling activity in the State including the organisation and conduct of lotteries by the Government of India or the Government of any State then obviously it cannot tax such an activity. But if it permits any species of betting and gambling activity within the State in terms of Entry 34 of List II then the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he impugned Acts, is traceable to the power conferred on the State Legislatures under Entry 62 of List II. The said entry contemplates imposition of taxes, inter alia, on the entire genus of betting and gambling . having concluded that lottery of every kind, whether organized by the Government of India or the Government of a State or by a private entity is included within the genus of gambling , we find no reason to hold that State organized lotteries are excluded from the ambit of betting and gambling as appearing in Entry 62 of List II. We are not inclined to accept the view that lotteries organized by the Government of India or the Government of a State are to be excluded from the expression betting and gambling as appearing in Entry 62 of List II which deals with taxes on gambling activities, simply because such category of lotteries is excluded from the regulatory field relatable to betting and gambling under Entry 34 of List II and included in Entry 40 of List I. Exclusion of a legislative field from a term appearing in a general Entry, does not necessarily mean that such field ought to be excluded from the taxation Entry. This means that the term betting and gambl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 124. In view of the aforesaid discussion, we come to the following summary of conclusions: - (i) That the subject betting and gambling in Entry 34 of List II is a State subject. (ii) From the judgments of this Court, it is now clear that lotteries is a species of gambling activity and hence lotteries is within the ambit of betting and gambling as appearing in Entry 34 List II. (iii) The expression betting and gambling is relatable to an activity which is in the nature of betting and gambling . Thus, all kinds and types of betting and gambling fall within the subject of Entry 34 of List II. The expression betting and gambling is thus a genus it includes several types or species of activities such as horse racing, wheeling and other local variations/forms of betting and gambling activity. The subject lotteries organised by the Government of India or the Government of a State in Entry 40 of List I is a Union subject. It is only lotteries organised by the Government of India or the Government of State in terms of Entry 40 of List I which are excluded from Entry 34 of List II. In other words, if lotteries are conducted by private parties or by instrumentali ..... X X X X Extracts X X X X X X X X Extracts X X X X
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