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SC upholds constitutional validity of Karnataka Tax on Lottery Act, 2004; Kerala Tax on Paper Lotteries Act, 2005

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The Supreme Court has upheld the constitutional validity of Karnataka Tax on Lottery Act, 2004 and validity of Kerala Tax on Paper Lotteries Act, 2005, which was challenged before the court.

A two-Judge Bench comprising Justice M.R. Shah and Justice B.V. Nagarathna were hearing appeals filed by the governments of Karnataka and Kerala against the governments of Nagaland, Arunachal Pradesh, Meghalaya, Sikkim and others, who are lottery organisers-cum-promoters in states of Karnataka and Kerala.

The Division Bench of the apex court set aside the judgement dated December 27, 2010 and March 7, 2011 of Kerala High Court, as well as the verdict dated April 30, 2020, August 9, 2021 and August 10, 2021 of Karnataka High Court.

It held that both Karnataka and Kerala were legally competent to impose tax on the lotteries conducted Nagaland, Arunachal Pradesh, Meghalaya and Sikkim in their states, since there are express provisions enshrined under the impugned acts for registration of agents or promoters of Governments of states such as Nagaland, AP, Meghalaya and Sikkim in relation to running lottery schemes in Karnataka and Kerala.

In Para 124, Sub clause (vi), the judgement affirms that 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, opined the Apex Court.

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‘Betting and gambling’ is relatable to an activity, which is in nature of betting and gambling. Thus, all kinds and types of betting and gambling fall within the subject of Entry 34 of List II’, finding of the apex court.

The Subject ‘Betting and Gambling’ in Entry 34 of List II is a state subject, another finding given by the Supreme Court.
The brief controversy involved three issues, the first issue is in respect to interpretation of expression ‘Betting and Gambling’ in Entries and Entries 34 and 62 of List II of the Seventh Schedule of the Constitution of India. Second issue was that 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? Thirdly, whether under Entry 62 of List II , the state legislature is deprived of power to levy tax on said subject ’Betting and Gambling’?
The question arises before the 2 judges bench was that whether the legislatures of Kerala and Karnataka government had legislative competence to enact Karnataka Act,2004 and Kerala Act, 2005 and to determine whether it is unconstitutional.

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