# STATE OF KARNATAKA & ANR. ETC v. STATE OF MEGHALAYA & ANR. ETC

- **Citation:** [2022] 18 S.C.R. 516
- **Court:** Supreme Court of India
- **Decided:** 2022-03-23
- **Case number:** Civil Appeal Nos.10466-10476 of 2011
- **Bench:** M. R. Shah, B. V. Nagarathna
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/state-of-karnataka-anr-etc-v-state-of-meghalaya-anr-etc-35841
- **Pages:** 89

## Headnote

Constitution of India, 1950 - Article 246 - Seventh Schedule
- Entry 40 of List 1 - Entry 34 of List II - Entry 62 of List II -
Karnataka Tax on Lotteries Act, 2004 - Kerala Tax on Paper
Lotteries Act, 2005 - Division Bench of the High Court of Karnataka
vide impugned judgments dated 27th December, 2010 and 7th March,
2011 held that the Karnataka Legislature had no legislative
competence to pass the Karnataka Tax on Lotteries Act, 2004 - The
Division Bench of the High Court of Kerala by the impugned
judgments dated 30th April, 2020, 9th August, 2021 and 10th
August, 2021, held that the Kerala legislature had no legislative
competence to enact the Kerala Tax on Paper Lotteries, Act, 2005
and declared it as unconstitutional and invalid - 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 - As per
the decision of the High Courts, the States of Karnataka and Kerala
were directed to refund the amounts deposited by the Respondents
States who had organised the lottery schemes - The present set of
appeals have been preferred by the States of Karnataka, Kerala
and others being aggrieved by the judgments passed by the Division
Benches of the High Courts of the respective States - Held:The
subject 'betting and gambling' in Entry 34 of List II is a State subjectFrom the judgments of the Supreme Court, it is 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 -
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
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Government of State in terms of Entry 40 of List I which are excluded
from Entry 34 of List II -'betting and gambling' is a State subject
except to the extent of it being denuded of its powers insofar as
Entry 40 of List I is concerned -Entry 62 of List II is a specific
taxation Entry on 'luxuries, including taxes on entertainments,
amusements, betting and gambling' - The power to tax is on all
activities which are in the nature of 'betting and gambling,' including
lotteries - Since, there is no dispute that lotteries, irrespective of
whether it is conducted or it is organised by the Government of
India or the Government of State or is authorized by the State or is
conducted by an agency or instrumentality of State Government or
a Central Government or any private player, is 'betting and
gambling', the State Legislatures have the power to tax lotteries
under Entry 62 of List II - This is because the taxation contemplated
under the said Entry is on 'betting and gambling' activities which
also includes lotteries, irrespective of the entity conducting the same
- Hence, the legislations impugned are valid as the Karnataka and
Kerala State Legislatures possessed legislative competence to enact
such Acts -The scope and ambit of lotteries organised by Government
of India or Government of State under Entry 40 of List I is only in
the realm of regulation of such lotteries - The said Entry does not
take within its contours the power to impose taxation on lotteries
conducted by the Government of India or the Government of State
- lottery schemes by the Government of other States are organised/
conducted in the State of Karnataka or Kerala and there are express
provisions under the impugned Acts for registration of the agents
or promoters of the Governments of respective States for conducting
the lottery schemes in the State of Karnataka and the State of Kerala
- This itself indicates sufficient territorial nexus betw

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[2022] 18 S.C.R. 516
516
STATE OF KARNATAKA & ANR. ETC.
v.
STATE OF MEGHALAYA & ANR. ETC.
(Civil Appeal Nos.10466-10476 of 2011)
MARCH 23, 2022
[M. R. SHAH AND B. V. NAGARATHNA, JJ.]
Constitution of India, 1950 - Article 246 - Seventh Schedule
- Entry 40 of List 1 - Entry 34 of List II - Entry 62 of List II -
Karnataka Tax on Lotteries Act, 2004 - Kerala Tax on Paper
Lotteries Act, 2005 - Division Bench of the High Court of Karnataka
vide impugned judgments dated 27th December, 2010 and 7th March,
2011 held that the Karnataka Legislature had no legislative
competence to pass the Karnataka Tax on Lotteries Act, 2004 - The
Division Bench of the High Court of Kerala by the impugned
judgments dated 30th April, 2020, 9th August, 2021 and 10th
August, 2021, held that the Kerala legislature had no legislative
competence to enact the Kerala Tax on Paper Lotteries, Act, 2005
and declared it as unconstitutional and invalid - 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 - As per
the decision of the High Courts, the States of Karnataka and Kerala
were directed to refund the amounts deposited by the Respondents
States who had organised the lottery schemes - The present set of
appeals have been preferred by the States of Karnataka, Kerala
and others being aggrieved by the judgments passed by the Division
Benches of the High Courts of the respective States - Held:The
subject 'betting and gambling' in Entry 34 of List II is a State subjectFrom the judgments of the Supreme Court, it is 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 -
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
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Government of State in terms of Entry 40 of List I which are excluded
from Entry 34 of List II -'betting and gambling' is a State subject
except to the extent of it being denuded of its powers insofar as
Entry 40 of List I is concerned -Entry 62 of List II is a specific
taxation Entry on 'luxuries, including taxes on entertainments,
amusements, betting and gambling' - The power to tax is on all
activities which are in the nature of 'betting and gambling,' including
lotteries - Since, there is no dispute that lotteries, irrespective of
whether it is conducted or it is organised by the Government of
India or the Government of State or is authorized by the State or is
conducted by an agency or instrumentality of State Government or
a Central Government or any private player, is 'betting and
gambling', the State Legislatures have the power to tax lotteries
under Entry 62 of List II - This is because the taxation contemplated
under the said Entry is on 'betting and gambling' activities which
also includes lotteries, irrespective of the entity conducting the same
- Hence, the legislations impugned are valid as the Karnataka and
Kerala State Legislatures possessed legislative competence to enact
such Acts -The scope and ambit of lotteries organised by Government
of India or Government of State under Entry 40 of List I is only in
the realm of regulation of such lotteries - The said Entry does not
take within its contours the power to impose taxation on lotteries
conducted by the Government of India or the Government of State
- lottery schemes by the Government of other States are organised/
conducted in the State of Karnataka or Kerala and there are express
provisions under the impugned Acts for registration of the agents
or promoters of the Governments of respective States for conducting
the lottery schemes in the State of Karnataka and the State of Kerala
- This itself indicates sufficient territorial nexus between the
respondents- States who are organising the lottery and the States of
Karnataka and Kerala - Division Benches of the High Courts of
Kerala and Karnataka were not right in holding 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).
Allowing the appeals, the Court
HELD: 1. Whether, while interpreting Entry 40 of List I
alongside Entries 34 and 62 of List II, the power to tax lotteries
STATE OF KARNATAKA & ANR. ETC. v. STATE OF
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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. 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, this Court
does 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. The
court 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
generis with entertainments and amusements. The tax is thus on
the activity of 'betting and gambling' as it is on an activity. (b)
The expression 'betting and gambling' is also found in Entry 34
of List II. The activity of 'betting and gambling' includes, inter
alia, lotteries. Lotteries can be conducted by the Government of
India or the Government of States or authorised by a State or be
conducted by private entities in a State. Thus, a lottery conducted
by any of the above entities, Government or private is an activity
falling within the nomenclature of 'betting and gambling' which is
the subject in Entry 34 List II. But what has been carved out of
Entry 34 of List II is only lotteries conducted by the Government
of India or the Government of any State. Therefore, all other types
of lotteries continue to remain within the scope and ambit of
'betting and gambling' as an activity in Entry 34 of List II. (c)
Hence under Entry 62 of List II, the specific power to tax an
activity which is 'betting and gambling' is reserved with the State
legislature and cannot be read within the scope and ambit of Entry
40 of List I which is inherently restricted in its scope. This Court
says so for the following reasons:
(i) First, when a specific entry regarding taxation is provided
in List II empowering the State Legislature to levy tax on a
subject, namely, 'betting and gambling' amongst other similar
activities, the same cannot be read by implication in an entry of
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List I namely Entry 40 of List I. This is because a taxation entry
is separate and distinct from an entry dealing on a particular
subject. This principle has been adequately explained by this Court
in several judgments such as M.P.V. Sundararamier and followed
in Hoechst Pharmaceuticals, Kesoram discussed above. (ii)
Second, a taxation entry or legislative power to levy a tax on
'betting and gambling' in the instant case, cannot be 110 split
between the Parliament and the State Legislature when the said
power is expressly enumerated in Entry 62 of List II. This is the
constitutional scheme under the three Lists. This is as per the
constitutional scheme. This is also evident on a perusal of the
Entries of List III (Concurrent List) which empowers both the
Union as well as State Legislature to enact laws on subjects
mentioned 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 Government
of any State. (iv) Fourth, 'betting and gambling' is a subject
enumerated in Entry 34 of List II and is a State subject. Therefore,
the permission for conducting any betting and gambling activities
within a State, including conduct of a lottery scheme under the
said Entry, gives competence to the State Legislatures to also
tax the said activity irrespective of who conducts it. This is
because what is being taxed is a gambling activity which is
squarely covered under Entry 34 of List II and not on lottery per
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se conducted by Government of India or Government of a State.
Therefore, the State Legislature has the competence to tax lottery
scheme which is gambling being conducted not only by the
Government of India or the Government of any State or by any
other agency or instrumentality of a particular State but also by a
private entity within the State as gambling. (v) Fifth, the contention
of respondents-States that the subject, 'lotteries organised by
the Government of India or the Government of a State' being
placed in Entry 40 of List I would also empower only the
Parliament to impose a tax on the same by way of implication
under the said Entry itself is not a correct interpretation of the
Entries in the Lists. (vi) Sixth, Entry 97 of List I can be invoked
only when any matter is not enumerated in List II or List III
including any tax not mentioned in the said Lists. There is no
specific Entry for levy of tax on betting and gambling in List I. It
is only in Entry 62 of List II. Thus, Entry 62 of List II gives
legislative competence to a State Legislature to levy a tax on
'betting and gambling'. This would also include a tax on
organisation and conduct of lotteries, whether by the Central
Government or Government of any State or authorised by a State
or by any private entity within the State when permission has
been given by a State Government to conduct such an activity of
gambling. Thus, Entries 34 and 62 of List II which deal with
'betting and gambling' have been interpreted identically and the
said expression is given an identical meaning. Thus, lotteries
organised by the Government of India or the Government of a
State is only excluded from Entry 34 of List II which deals with
'betting and gambling' only, for the purpose of regulation by the
Parliament and not for levy of tax. (vii) Seventh, when the State
Government has the legislative 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
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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
State has legislative competence to tax such an activity of betting
and gambling including lotteries irrespective of who conducts it
as per Entry 64 of List II. (x) Tenth, Entry 40 of List I is meant
only for the regulation of lotteries organised by the Government
of India or the Government of a State. The said Entry cannot be
expanded to cover the power to levy taxes on lotteries by the
Parliament when as such a power is envisaged in Entry 62 of List
II. The Parliament, therefore, cannot tax a gambling activity,
namely, organisation of lotteries conducted by the Government
of India or for Government of a State on the strength of Entry 40
of List I. It may however regulate the said activity. Any impost
strictly for the purpose of regulation of lotteries is permissible
so long as it is not a tax on gambling which is only within the
ambit of only Entry 62 of List II. In other words, in order to have
uniformity in the regulation of lotteries organised by the
Government of India or the Government of a State throughout
the territory of India, Entry 40 is found in List I and the Parliament
is vested with the power to regulate the same. (xi) Eleventh, any
betting and gambling activity conducted by a private entity in a
State or is authorized by a State Government can be regulated
only by the State Legislature. This is because of Entry 34 in of
List II which deals with betting and gambling which also includes
lotteries and the same does not fall within Entry 40 of List I. (xii)
Twelfth, when a Government of a State permits organisation or
conduct of lotteries either by the Government of India or the
Government of any State thereby enabling participation in the
scheme of lottery by those persons who have purchased the lottery
tickets in the State, the territorial nexus is established as lottery,
being species of betting and gambling, is permitted to be
conducted within the State which has sought to impose taxation
on the conduct of lotteries. Such nexus persists even when the
STATE OF KARNATAKA & ANR. ETC. v. STATE OF
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lotteries promoted within the taxing State are conducted by the
Government of India or the Government of any other State.
Therefore, the court we do not find any merit in the contention
regarding the impugned laws being invalid on account of extra
territorial operation. [Para 118][595-G-H; 596-A-H; 597-A-H;
598-A-H; 599-A-H; 600-A-H; 601-A]
2. In conclusion this Court holds that the tax sought to be
imposed by the State Legislatures of Karnataka and Kerala by
way of the 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 gambling' in Entry 62 of
List II is being construed in the same way as in Entry 34 of List
II. The expression is accorded the same meaning and
interpretation in both the Entries, i.e., that gambling includes
lotteries. However, 'lotteries organized by the Government of
India or the Government of a State' have been carved out of Entry
34 of List II and been placed with the Union. Entry 34 of List II is
denuded to this limited extent. Such transposition of power does
not mean that the term 'betting and gambling' has a different
meaning in each of the aforesaid Entries. It only implies that for
regulatory purposes, having regard to the need for uniform
legislation throughout the territory of India, the Parliament has
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been conferred with exclusive jurisdiction to regulate the conduct
of lotteries, throughout the territory of India. [Para 119][601-BG]
3. In the instant case, the tax imposed is on the 'gambling'
nature of lotteries, which field is covered in its entirety under
Entry 62 of List II and the power to impose tax under this Entry
extends in relation to lottery of every kind, with no distinction as
to the entity organizing the same. [Para 120][601-G-H; 602-A]
4. Thus, in the context of lotteries, the organisation and
conduct of a lottery scheme being a pan India activity, when any
State Government permits the Government of India or any other
State Government to organise the lottery scheme in that State,
Entry 62 of List II would enable the Legislature of that State to
levy taxes on the same. [Para 121][602-B]
5. Hence, in our view, the Legislatures of the State of
Karnataka and Kerala were fully competent to enact the impugned
Acts and levy taxes on the activity of 'betting and gambling' being
organised and conducted in the said respective States, including
lotteries conducted by the Government of India or the
Government of any State. [Para 122][602-C]
6. The Division Benches of the High Courts was not right
in holding that the State Legislatures had no power to levy tax on
lotteries conducted by the Government of India or the
Government of any State or Union territory in the State of
Karnataka as such a power could be read in Entry 40 or Entry 97
of List I and only the Parliament could levy such a tax. Since we
have held that the States of Karnataka and Kerala had the
legislative competence to enact the impugned Acts, the question
of refund of tax collected under the same does not arise. [Para
123][602-D-E]
7. In view of the aforesaid discussion, this Court comes 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'
STATE OF KARNATAKA & ANR. ETC. v. STATE OF
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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
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 India or the
Government of a State, in terms of Entry 40 of List I. In other
words, except what is excluded in terms of Entry 40 of List I, all
other activities which are in the nature of 'betting and gambling'
would come within the scope and ambit of Entry 34 of List II.
Thus, 'betting and gambling' is a State subject except to the extent
of it being denuded of its powers insofar as Entry 40 of List I is
concerned. (v) Entry 62 of List II is a specific taxation Entry on
'luxuries, including taxes on entertainments, amusements,
betting and gambling'. The power to tax is on all activities which
are in the nature of 'betting and gambling,' including lotteries.
Since, there is no dispute that lotteries, irrespective of whether
it is conducted or it is organised by the Government of India or
the Government of State or is authorized by the State or is
conducted by an agency or instrumentality of State Government
or a Central Government or any private player, is 'betting and
gambling', the State Legislatures have the power to tax lotteries
under Entry 62 of List II. This is because the taxation
contemplated under the said Entry is on 'betting and gambling'
activities which also includes lotteries, irrespective of the entity
conducting the same. Hence, the legislations impugned are valid
as the Karnataka and Kerala State Legislatures possessed
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legislative competence to enact such Acts. (vi) Thus, the scope
and ambit of lotteries organised by Government of India or
Government of State under Entry 40 of List I is only in the realm
of regulation of such lotteries. The said Entry does not take within
its contours the power to impose taxation on lotteries conducted
by the Government of India or the Government of State. (vii) We
also hold that lottery schemes by the Government of other States
are organised/conducted in the State of Karnataka or Kerala and
there are express provisions under the impugned Acts for
registration of the agents or promoters of the Governments of
respective States for conducting the lottery schemes in the State
of Karnataka and the State of Kerala. This itself indicates
sufficient territorial nexus between the respondents- States who
are organising the lottery and the States of Karnataka and Kerala.
(viii) In view of the aforesaid conclusions, the court find that
Division Benches of the High Courts of Kerala and Karnataka
were not right in holding 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). [Para 124][602-E-H; 603-A-H; 604-AE]
Skill Lotto Solutions Pvt. Ltd. vs. Union of India (2020)
SCC Online SC 990; Govind Saran Ganga Saran vs.
Commissioner of Sales Tax AIR 1958 SC 1041 : [1985]
SCR 985; M.P.V Sundararamier and Co. vs. State of
Andhra Pradesh AIR 1958 SC 468 : [1958] SCR 1422;
State of West Bengal vs. Kesoram Industries Limited
(2004) 10 SCC 201 : [2004] 1 SCR 564; Synthetics
and Chemicals Ltd. vs. State of Uttar Pradesh (1990) 1
SCC 109 : [1989] 1 Suppl. SCR 623; JalkalVibhag
Nagar Nigam vs. Pradeshiya Industrial and Investment
Corporation (2021) SCC Online SC 960; Mafatlal
Industries Ltd. vs. Union of India (1997) 5 SCC 536,
[1996] 10 Suppl. SCR 585; Somaiya Organics (India)
Ltd. vs. State of Uttar Pradesh (2001) 5 SCC 519 :
[2001] 3 SCR 33; I.C. Golaknath vs. State of Punjab
AIR 1967 SC 1643 : [1967] SCR 762; India Cement
Ltd. vs. State of Tamil Nadu (1990) 1 SCC 12 : [1989] 1
Suppl. SCR 692; Jindal Stainless Ltd. vs. State of
STATE OF KARNATAKA & ANR. ETC. v. STATE OF
MEGHALAYA & ANR. ETC.
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Haryana (2017) 12 SCC 1 : [2016] 10 SCR 1;
Prof.Yashpal vs. State of Chhattisgarh (2005) 5 SCC
420 : [2005] 2 SCR 23; Union of India vs. Harbhajan
Singh Dhillon (1971) 2 SCC 779 : [1972] 2 SCR 33;
Sunrise Associates vs. Government of Delhi (2006) 5
SCC 603 : [2006] 1 Suppl. SCR 421; Federation of
Hotel and Restaurant Association of India vs. Union of
India (1989) 3 SCC 634 : [1989] 2 SCR 918; New Delhi
Municipal Council vs. State of Punjab (1997) 7 SCC
339 : [1996] 10 Suppl. SCR 472; Maharaj Singh vs.
State of UP 1977 (1) SCC 155 : [1977] 1 SCR 1072;
State of Uttar Pradesh vs. Vam Organic Chemicals
Limited and Ors. (2004) 1 SCC 225 : [2003] 4 Suppl.
SCR 957; State of Orissa vs. M.A. Tulloch AIR 1964
SC 1284 : [1964] SCR 461- referred to
Prafulla Kumar Mukherjee vs. Bank of Commerce,
Khulna AIR 1947 P.C. 60; State of Bombay vs. FN
Balsara AIR 1951 SC 318 : [1951] SCR 682; Atiabari
Tea Company Ltd. vs. State of Assam AIR 1961 SC 232
: [1961] SCR 809; Ujagar Prints vs. Union of India
AIR 1989 SC 516 : [1988] 3 Suppl. SCR 770; United
Provinces vs. Atiqa Begum AIR 1941 FC 16; Calcutta
Gas Company vs. State of West Bengal AIR 1962 SC
1044 : [1962] Suppl. SCR 1; RMDC vs Union of India
AIR 1957 SC 628; [1957] SCR 930; Re. Sea Customs
Act AIR 1963 SC 1760 : [1964] SCR 787; Khyerbari
Tea Co. Ltd. vs. State of Assam AIR 1964 SC 925 :
[1964] SCR 975; Hoechst Pharmaceuticals Ltd. vs. State
of Bihar AIR 1983 SC 1019 : [1983] 3 SCR 130; Hingir
- Rampur Coal Co. Ltd. vs. State of Orissa AIR 1961
SC 459 : [1961] SCR 537; State of Bombay vs. R.M.D.
Chamarbaugwala AIR 1957 SC 699 : [1957] SCR 874;
H. Anraj vs. State of Maharashtra, (1984) 2 SCC 292 :
[1984] 2 SCR 440; H. Anraj vs. Government of Tamil
Nadu (1986) 1 SCC 414 : [1985] 3 Suppl. SCR 342;
State of Haryana vs. M/s Suman Enterprises (1994) 4
SCC 217; B.R. Enterprises vs. State of Uttar Pradesh
(1999) 9 SCC 700 : [1999] 2 SCR 1111; RMDC vs.
State of Mysore AIR 1962 SC 594 : [1962] SCR 230;
A
B
C
D
E
F
G
H
527
Sunrise Associates vs. Govt. of NCT of Delhi (2006) 5
SCC 603 : [2006] 1 Suppl. SCR 421; - relied on.
Reader's Digest Association ltd. v. Williams, (1976) 1
W.L.R. 1109 - referred to.
Black's Law Dictionary, 104; Advanced Law Lexicon, P.
RamanathaAiyar (6th Edition), 104; Words and Phrases
[Permanent Edition] Vol. 25-A at page 439, 104;
Advanced Law Lexicon, P. RamanathaAiyar (1997
Edition), 104; Concise Oxford English Dictionary
[Oxford University Press, 11 Edn., 2004], 104; Webster's
New American College Dictionary (1981), 105 - Relied
on.
Case Law Reference
[1985] SCR 985
referred to
Para 9
[1958] SCR 1422
referred to
Para 10
[2004] 1 SCR 564
referred to
Para 10
[1989] 1 Suppl. SCR 623
referred to
Para 10
[1996] 10 Suppl. SCR 585
referred to
Para 15
[2001] 3 SCR 33
referred to
Para 15
[1967] SCR 762
referred to
Para 15
[1989] 1 Suppl. SCR 692
referred to
Para 15
[2016] 10 SCR 1
referred to
Para 20
[2005] 2 SCR 23
referred to
Para 21
[1972] 2 SCR 33
referred to
Para 22
[2006] 1 Suppl. SCR 421
referred to
Para 23
[1989] 2 SCR 918
referred to
Para 32
[1996] 10 Suppl. SCR 472
referred to
Para 37
[1977] 1 SCR 1072
referred to
Para 48
[2003] 4 Suppl. SCR 957
referred to
Para 50
[1964] SCR 461
referred to
Para 81
[1951] SCR 682
relied on
Para 57
STATE OF KARNATAKA & ANR. ETC. v. STATE OF
MEGHALAYA & ANR. ETC.
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B
C
D
E
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528
SUPREME COURT REPORTS
[2022] 18 S.C.R.
[1961] SCR 809
relied on
Para 58
[1988] 3 Suppl. SCR 770
relied on
Para 58
[1962] Suppl. SCR 1
relied on
Para 62
[1957] SCR 930
relied on
Para 63
[1964] SCR 787
relied on
Para 66
[1964] SCR 975
relied on
Para 67
[1983] 3 SCR 130
relied on
Para 70
[1961] SCR 537
relied on
Para 81
[1957] SCR 874
relied on
Para 108
[1984] 2 SCR 440
relied on
Para 108
[1985] 3 Suppl. SCR 342
relied on
Para 108
[1999] 2 SCR 1111
relied on
Para 108
[1962] SCR 230
relied on
Para 108
[2006] 1 Suppl. SCR 421
relied on
Para 108
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1046610476 of 2011.
From the Judgment and Order dated 27.12.2010 of the High Court
of Karnataka at Bangalore in Writ Appeal Nos. 2251, 2131, 2132, 2220,
2246, 2221, 2225, 2248 of 2007 and 749, 750, 895 of 2008 (GM-LOTT).
With
Civil Appeal Nos. 101-102 of 2012, Civil Appeal No. 911 of 2021,
Civil Appeal Nos. 869-870 and 871 of 2022.
N. Venkataraman, ASG, Nikhil Goel, AAG, Pallav Shishodia, Sr.
Adv., Shubhranshu Padhi, Ashish Yadav, Rakshit Jain, Vishal Banshal,
C. K. Sasi, Abdullah Naseeh, Ms. Meena K. P., Advs. for the Appellants.
Amit Kumar, Vivek Kohli, Advocate Generals, Arvind Datar, S.
K. Bagaria, C. A. Sundaram, Sr. Advs., Avijit Mani Tripathi, Aditya
Shankar Pandey, Ms. Vishakha Kumar, Rahul Unnikrishnan, Shaurya
Sahay, Shaffi Mather, Siddhartha Chowdhury, Sameer Abhyankar, Ms.
Yeshi Rinchhen, Kumar Ajit Singh, Abhinav Mishra, Ms. Nishi Sangatani,
Ms. Rohini Musa, Abhishek Gupta, Zaffar Inayat, Bhargava V. Desai,
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529
Ajit Kumar, Shivam Jasra, M/s Arputham Aruna and Co., Mrs. Gurkamal
Hora Arora, Amit Bhatnagar, Subodh Pandey, Abhishek Sharma, Ms.
Tatini Basu, Gautam Narayan, Kartik Seth, Ms. Shriya Gilhotra, Ms.
Garima Saxena for M/s Chambers of Kartik Seth, Advs. for the
Respondents.
The Judgment of the Court was delivered by
NAGARATHNA J.
INDEX*
1.
Bird's Eye View of Controversy .................................4
2.
Submissions .........................................................5
2.1.
Submissions on behalf of Appellants:
2.1.1. Submissions on behalf of State of
Karnataka.....................................................5
2.1.2. Submissions on behalf of State of Kerala......9
2.2.
Submissions on behalf of Respondents :
2.2.1. Submissions on behalf of State of Nagaland....11
2.2.2. Submissions on behalf of State of Sikkim....22
2.2.3. Submissions on behalf of State of Meghalaya..26
3.
Reply Arguments.................................................29
4.
Points for Consideration..........................................34
5.
Constitutional Scheme...........................................35
6.
Acts under consideration :
6.1.
The Lotteries (Regulation) Act, 1998..................62
6.2.
The Karnataka Tax on Lotteries Act, 2004..........64
6.3.
Kerala Tax on Paper Lotteries Act, 2005..............67
7. Parameters of Taxation...............................................69
8. Meaning of 'betting and gambling' and 'lotteries' ............73
9. Discussion..............................................................100
10. Summary of Conclusions...........................................119
STATE OF KARNATAKA & ANR. ETC. v. STATE OF
MEGHALAYA & ANR. ETC.
* Ed. Note: Pagination in the Index is as per the original judgment.
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SUPREME COURT REPORTS
[2022] 18 S.C.R.
These appeals have been preferred by the States of Karnataka,
Kerala and others being aggrieved by the judgments passed by the
Division Benches of the High Courts of the respective States. The Division
Bench of the High Court of Karnataka vide impugned judgments dated
27th December, 2010 and 7th March, 2011 held that the Karnataka
Legislature had no legislative competence to pass the Karnataka Tax on
Lotteries Act, 2004 (hereinafter referred to as, "Karnataka Act, 2004")
and, consequently, directed the amounts deposited by the respondentsStates who had organised the lottery schemes to be refunded to them
within four months from the date of receipt of the copy of the impugned
judgment.
2. Similarly, the Division Bench of the High Court of Kerala by
the impugned judgments dated 30th April, 2020, 9th August, 2021 and 10th
August, 2021, held that the Kerala legislature had no legislative
competence to enact the Kerala Tax on Paper Lotteries, Act, 2005
(hereinafter referred to as, "Kerala Act, 2005") and declared it as
unconstitutional and invalid. Liberty was reserved to the respondentsStates to seek refund of the tax already collected by the State of the
Kerala under the said Act on producing proper account 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 answer is in the affirmative, whether the State
A
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531
Legislatures have no legislative competence to levy tax on lotteries
organised by the Government of India or Government of a State.
Consequently, the question in these cases is, whether, the legislature of
States of Karnataka and Kerala had the legislative competence to enact
Karnataka Act, 2004 and Kerala Act, 2005 respectively. Further, whether
these Acts are unconstitutional as being extra territorial in operation?
Submissions on behalf of Appellants:
Submissions on behalf of State of Karnataka:
5. Sri N. Venkataraman, learned Senior Counsel and Additional
Solicitor General appearing on behalf of the appellant-State of Karnataka
contended that the impugned legislation passed by the Karnataka State
Legislature does not seek to impose a tax on the sale of lottery tickets.
He referred to the following two cases in support of his contention: (i)
Sunrise Associates vs. Govt. of NCT of Delhi - [(2006) 5 SCC 603]
wherein it was held that lottery tickets are only actionable claims and
not goods or services and cannot be taxed invoking Entry 54 of List II
and; (ii) Skill Lotto Solutions Pvt. Ltd. vs. Union of India -[2020
SCC Online SC 990] wherein it was held that under the new Central
Goods and Services Tax (CGST) regime, post 1st July, 2017, actionable
claims are brought under the tax network of Goods and Services Tax
(GST).
6. Learned Senior Counsel submitted that the tax under question,
is neither a tax on sale of lottery tickets nor on lotteries as actionable
claims and any reference to Entry 54 of List II will be of no avail as tax
on lotteries is not a sales tax or Value Added Tax (VAT) or GST. He
contended that the tax under question is a tax on gambling traceable to
Entry 62 of List II which,inter alia, deals with tax on betting and
gambling. It was contended that the Karnataka Tax on Lotteries Act,
2004 was passed in pursuance of the power under the aforesaid entry
and the Karnataka State Legislature had the legislative competence to
pass such a legislation.
7. Elaborating further, it was pointed out that Entry 40 of List I is
only a 'regulatory entry' and the Lotteries (Regulation) Act, 1998
(hereinafter referred to as "Lotteries Act, 1998") was enacted by the
Parliament in light of the same. That said Act deals with only 'regulation'
and not with 'taxation' owing to the jurisdictional incompetence of the
Parliament in the area of taxation of State lotteries. Entry 34 of List II is
STATE OF KARNATAKA & ANR. ETC. v. STATE OF
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]
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SUPREME COURT REPORTS
[2022] 18 S.C.R.
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 Rs.1,50,000/- and in case of any other draw is
Rs.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, along with the measure are available to tax a person,
such a levy cannot be questioned.
10. Sri Venkataraman next urged that where a regulatory power
and taxing power are traceable to different sources and are kept distinct
under the Constitutional scheme, in such a case, the regulatory entry
cannot subsume a taxing entry as was held in M.P.V Sundararamier
and Co. vs. State of Andhra Pradesh-[AIR 1958 SC 468] and State
of West Bengal vs. Kesoram Industries Limited-[(2004) 10 SCC
201]. He further relied upon a Seven Judge Bench decision in Synthetics
and Chemicals Ltd. vs. State of Uttar Pradesh - [(1990)1 SCC 109]
wherein it was held that the power to regulate, develop or control would
not include within its ken a power to levy tax or fee except when the
said impost is only for a regulatory purpose. That it is permissible for the
power to levy tax or fee for augmenting revenue to continue to vest with
the State Legislature despite the regulatory power being with the Union.
That ratio in synthetics and chemicals (supra) was reiterated recently
in Jalkal Vibhag Nagar Nigam vs. Pradeshiya Industrial and
Investment Corporation - [2021 SCC Online SC 960] and had first
been laid down in RMDC vs. State of Mysore - [AIR 1962 SC 594].
11. Sri Venkatraman further contended that the tax imposed in
the instant case is not extra-territorial in its operation since the tax is on
the act of gambling in the State of Karnataka and when more than one
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533
State is involved, the nexus theory test has to be applied. Reliance was
placed on State of Bombay vs. R.M.D. Chamarbaugwala - [AIR
1957 SC 699], wherein the requirement of fulfilling three principles,
namely, real and not illusory connection; liability sought to be imposed be
pertinent to that connection and the connection affecting merely the
policy and not validity of legislation, were stipulated. In such a case,
when there are participants from State of Karnataka in the act of
gambling, there is a real connection to the taxable event and the levy
under the impugned legislation is pertinent to that connection although
the lottery is organised by any other State in the State of Karnataka.
12. It was further contended that lotteries are res extra
commercium i.e., outside the ambit of trade and commerce and therefore,
it will neither get protection under Art.