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Maharashtra Tax on Lotteries Act, 2006 is Constitutionally valid

Sri Mangal Murty Marketing Vs State of Maharastra (High Court Bombay)

As a result, perusal of the Lotteries (Regulation) Act 1988 only regulates the lotteries and the Regulation is in form of the stipulation of terms and conditions when the Government organizes, conduct or promotes a lottery. The intention of the Parliament in introducing Section 5 in the said enactment is very apparent It authorizes the State Government to prohibit the sale of tickets of a lottery organized, conducted or promoted by every other State. Resultantly, the State Government is empowered to prohibit or restrict within its State the sale of lottery tickets of any other State. The State has invoked Entry 62 of List II while enacting the impugned legislation. This entry specifically empowers the State to tax on betting and gambling. Though the learned Senior counsel made a serious attempt to submit before us that a presumption that lottery is betting and gambling, is erroneous but once the Division Bench of this Court had fallen back on Entry 62 of List II, we do not find any error in the said conclusion.

20. In such circumstances, we do not find any flaw in the observation of the Division Bench when it proceeds to hold that lottery falls within the purview of betting and therefore, Entry 62 List II is invoked by the State Legislature to enact a law imposing tax on betting and gambling. We are not convinced by the argument of the learned senior counsel to deviate from the reasoning of the Division Bench of this Court and to fall in line with the judgment of the Karnataka High Court. We are of the specific view that the judgment delivered in N.V. Marketing Pvt.Ltd (supra) covers the issue raised in the petition which has pronounced the said statute to be a valid piece of legislation and the State legislature being empowered to enact the same. In any contingency, the judgment delivered by the Division Bench of this Court is subject matter of challenge before the Hon’ble Apex Court and since we are not sitting in an Appeal over the Division bench judgment delivered by this Court, we are not inclined to re-examine it as if we are sitting in Appeal. In such circumstances, we do not find force in the submission of the learned senior counsel and we are inclined to dismiss the Writ Petition and hold and declare that the Maharashtra Tax on Lotteries Act 2006 is well within the legislative competence of the State legislature and Writ Petition deserves to be dismissed and is accordingly dismissed.

FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT

Rule. Rule returnable forthwith.

2. The petitioner, proprietor of Sri Mangal Murti Marketing and carrying on business as a Sub-­Distributor of State organized lottery of Government of Arunachal Pradesh and Nagaland has approached this Court seeking a declaration to the effect that Maharashtra Tax on Lotteries Act, 2006 be declared as void, being ultra vires to the provisions of Constitution. A direction is also sought to the Respondent State to restrain itself from levying and/or collecting tax on sale of lottery tickets in State of Maharashtra. The said Writ Petition came to be admitted on 27th June 2007 and an interim direction was issued to the effect that the State shall not levy or collect any taxes from the petitioner and it shall not obstruct the petitioner as long as it is carrying on lawful business.

The Division Bench of this Court was pleased to dispose of the Writ Petition by an order dated 29th November 2016 in view of the fact that the challenge in the writ petition was already covered by a judgment delivered by the Division Bench (D.K.Deshmukh and R.S. Mohite, JJ) in group of petitions in case of N.V. Marketing Pvt.Ltd Vs. State of Maharashtra and ors decided on 14th August 2009.

The petitioner, however, filed a Review Petition (Civil) No.10 of 2017 along with an application for condonation of delay. This Court, on 23rd March 2017, condoned the delay and was also pleased to restore the Writ Petition to its file. This order came to be passed when it was noted that a Division Bench in the High Court of Karnataka at Bangalore had delivered a judgment in WA No.2251 of 2007 and connected matters filed in the High Court of Karnataka at Bangalore and one of the learned Judge (Hon’ble Chief Justice Dr.Manjula Chellur,J) was a party to the said judgment. The said Division Bench of the High Court of Karnataka had taken a view divergent to the decision delivered by the High Court of Judicature at Bombay in case of N.V. Marketing Pvt.Ltd Vs.

State of Maharashtra. In view of the contrary opinion expressed by the two Division Benches and since one of the Hon’ble Judge was a party to the decision, the Writ Petition was restored.

This is how the matter was listed before us for final hearing.

3. We have heard the learned Senior counsel, Shri P.S.Raman i/b B.B. Parekh for the petitioner and Advocate General Shri Ashutosh Kumbhakoni with Ms.Geeta Shastri for the State. We have perused the Writ Petition which poses a challenge to the Maharashtra Act No.53 of 2006 i.e. Maharashtra Tax on Lotteries Act, 2006. The precise ground on which the said Act has been assailed is an allegation that the said Enactment is passed with an object of doing indirectly what cannot be done directly i.e. restriction/prohibition of sale of lottery tickets in the State of Maharashtra of the lotteries organized by other State. The learned Senior counsel invited our attention to the backdrop of the events which culminated into enacting the said legislation. The case of the petitioner is that in respect of the sale of lottery tickets by the petitioner in the State prior to the said enactment when the Bombay Sales Tax Act was in force, the petitioner was paying tax in respect of sale of such lottery tickets in State of Maharashtra in accordance with the law laid down by the Hon’ble Apex Court in case of B.R. Enterprises Vs. State of Uttar Pradesh¹. However, subsequent to the abolition of the Sales Tax by the Maharashtra Value Added Tax Act 2002, there was no tax payable in respect of sale of said lottery tickets. It is the specific case of the petitioner, as set out in the petition that the first respondent always attempted to restrict/prohibit sale of lottery tickets in the State of Maharashtra, in respect of sale of the sale of lottery tickets on the lotteries organized by other States by amending the Sales Tax Act so as to impose the tax on sale of lottery tickets in the State of the lotteries organized by other States and to make their survival difficult. However, when these attempts did not yield any result, the said Enactment has been brought into force which is nothing but an attempt to restrict/prohibit the sale of lottery tickets of other States in the State of Maharashtra.

The petition assails the legislative competence of the State Legislature to enact the impugned legislation. It is attempted to canvass before us by the learned senior counsel that lottery is the subject included in the union list and the power to legislate in respect of lotteries is exclusively rests with the Parliament. In exercise of its power, the Parliament has already enacted the Lottery Regulation Act, 1998 to regularize the conduct of lottery business in respect of the State Organized lotteries and with a view to offer security to the purchaser of lottery tickets. Our attention is invited to Section 5 of the said Act which empowers the State Government to prohibit sale of lotteries of other States within its territory and Section 6 which empowers the Union Government to take measures against any lottery which violates the provisions of Lottery Regulation Act. It is also pointed out that the vires of the said enactment has already been upheld by the Hon’ble Supreme Court in case of B.R. Enterprises Vs. State of Uttar Pradesh (supra). The petitioner does not dispute that State can prohibit sale of lottery tickets in that State where the State itself does not run any lottery and it does not allow sale of lottery tickets of any other State. The learned Senior counsel would submit that the constitution bench in case of Sunrise Associates Vs. Government of NCT of Delhi & ors2 has already held that the sale of lottery tickets does not involve sale of goods and in view of this authoritative pronouncement, any attempt to impose any sales tax on the lottery was frowned upon. However, the State of Maharashtra enacted the Maharashtra Value Added Tax, 2002 in lieu of the Sales Tax by repealing the Bombay Sales Tax Act and excluded the lottery tickets from the provision of Maharashtra Value Added Tax 2002. However, it came up with the impugned enactment, which according to the learned senior counsel is beyond the legislative competence of the State legislature and therefore, it is liable to be struck down. It is attempted to canvass before us that the State Legislature has invoked Entry 62 of List II on the sale of lottery tickets which is not permissible as the Parliament alone has power to legislate on the subject “lottery tickets” or to propose any tax on lottery tickets. According to the learned senior counsel, the only power given to the State by virtue of Lotteries Regulations 1998 is to make provisions regulating lotteries in the State. It is also attempted to canvass before us that the term “Scheme” is not defined in the impugned legislation and the entire incidence of tax is based on the scheme but in absence of any clear cut definition of the term ‘scheme’, the respondent State is not entitled to levy or collect any tax on an unambiguous basis. In short, it is submitted that in effect and substance, the respondent State is levying tax on the scheme which is contemplated under the impugned legislation to be either a weekly, fortnightly, monthly lottery scheme or a bumper lottery scheme. It is the submission of the petitioner that the scheme comprises of several draws in accordance with the said Act and if the tax is levied as per scheme, the State is not permitted to levy such a tax and it’s levy is completely arbitrary and violative of Article 14 of the Constitution.

4. The learned Senior counsel would also submit that the impugned tax has no nexus with the charging event, particularly since the charging event as well as the measure of tax has no nexus or relation with the tax and its utilization as there is no expenditure incurred by the respondent Government in either the conduct of the lotteries by other States or in the act of holding of the scheme of other State lotteries and as such, there is nothing to be compensated to the State. The submission of the learned senior counsel Mr. Raman is that it is thus an arbitrary exaction of huge amount which only worked as prohibitory means against other States from selling their lotteries in the State of Maharashtra and hence, the impugned legislation is a piece of colorable legislation, so as to overcome the restraint of Section 5 of the Central Act and it also violates Section 301 of the Constitution of India and deserves to be set aside on the said ground.

5. Another submission of the learned Senior counsel is that the impugned tax is discriminatory since it is being imposed on other State’s lotteries by the State of Maharashtra, but the State itself has its own lottery scheme in place and, therefore, the said legislation is violative of Article 14. He also submits that in any case, the Revenues of a State cannot be taxed by other States under Article 289 of the Constitution. Therefore, taxing the revenues of other States is wholly without jurisdiction and in fact, by making such payment of tax in advance, as to a pre-condition for conduct of lotteries, prohibits the conduct of the business of lotteries by other States. Thus, the impugned enactment, according to the learned senior counsel is clear contradiction of the Lotteries (Regulation) Act 1998.

6. When we confronted the learned senior counsel with the judgment delivered by the Division Bench of this Court, which forecloses the issue involved in the present writ petition, the submission of the learned senior counsel is that the said judgment proceeds on a premise that lottery is ‘Betting’ and hence, it has held that the State Legislature was perfectly within its jurisdiction by invoking entry 62 of List II to bring such an enactment. The submission of Shri Raman is that the Division Bench of High Court has sought to sustain the legislative competence of the State Legislature by relying upon an admission made before the Court that lottery comes within the expression “betting and gambling” as applied in Entry 34 and 62 of List II of Seventh Schedule of the Constitution. According to him, this is a legal issue, which cannot be resolved on admission by parties, more particularly, in light of the judgment of the Hon’ble Apex Court in case of H.Anraj Vs. State of Maharashtra,3 holding that the State Organized Lotteries and the lotteries are excluded from the expression “betting and gambling” in List II in Entry 34 and put in Entry 40 of List I of Seventh Schedule to the Constitution. His submission is that the High Court has thus, fallen in error in observing to the following effect.

“That Entry 34 of List II of the Seventh Schedule of the Constitution empowers the State Government to legislate in relation to betting and gambling, but because of Entry 40 in List I of the Seventh Schedule of the Constitution, lottery is excluded from the ambit of the term “betting” in Entry 34 of List II of the Seventh Schedule and it also stands excluded from the ambit of the term “betting” in Entry 62 of List II of the Seventh Schedule” is misconceived and against the settled law.”

7. The learned senior counsel makes an attempt to canvass before us that the judgment of the constitution bench of the Hon’ble Apex Court in State of West Bengal vs. Kesoram Industries Limited & ors 4 and specifically paragraph nos.75 and 76 does not apply to the present case. According to Shri Raman, the point involved here is not whether regulatory power and taxation powers are the same, but the issue is whether the expression “betting and gambling” consciously applied by the framers of the Constitution in Entry 34 and Entry 62 of List II are to be assigned the same meaning or it is intended or meant to convey different meaning and having different scope and ambit. According to him, since the Division Bench of this Court had wrongly approached the said question, it had erroneously answered it in para 10 to the following effect

“ It is clear from the above quoted observations that if the power to tax in relation to a subject is clearly mentioned in List II of the Seventh Schedule of the Constitution, the same would not be available to be exercised by the Parliament based on the assumption of residuary power. Entry 62 of List II of the Seventh Schedule specifically empowers the State legislature to impose tax in relation to the lotteries because admittedly the lotteries are included within the ambit of the meaning of the term “betting”. It cannot be said that the Parliament gets legislative competence to impose tax in relation to the lotteries because of the residuary Entry 97 in List I of the Seventh Schedule. Entry 34 of List II of the Seventh Schedule confers legislative competence on the State legislature to legislate regulating betting and gambling ”

8. The precise submission of the learned senior counsel is that the High Court is reading Entry 62 of List II as under :-

“62 Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling (including Lotteries organized by the Government of India or the Government of a State….”

The submission is that the matters “ Lotteries organized by the Government of India or the Government of a State ¼.” is not found in Entry 62 List II and the law is clear that the Entry will have to be read as it is and not by reading in it what the framers of the Constitution did not choose to put therein. This, according to him, is an error apparent on the face of the record and in fact amounts to illegal exercise of power without jurisdiction by the Respondent State in enacting the impugned Act.

The learned senior counsel would also invite our attention to Article 246 of the Constitution and made an earnest request to appreciate the constitutional framework and according to him, the High Court has grossly erred in arriving at a conclusion that Entry 62 would also cover “lotteries organized by the Government of India” or the “Government of State” which in fact, is not found in the said entry and he is therefore, critical of the judgment of the Division Bench of this Court and would fall back on the judgment delivered by the High Court of Karnataka where it is held that the State of Karnataka had no legislative competence to enact Karnataka Tax on Lotteries Act, 2004, a legislation similar to the Maharashtra Tax on Lotteries Act. The learned senior counsel painstakingly took us through the judgment of the Karnataka High Court where, according to him, the principle set out in case of H. Anraj & ors Vs. State of Maharashtra 5, and Sunrise Associates Vs. Government of NCT of Delhi & ors (supra) have been rightly applied. He submits that the High Court of Karnataka had rightly concluded that the State lotteries organized by the Government of India or the Government of a State has been made a subject within the exclusive legislative competence of a Parliament, and State has no legislative competence to make a law touching the lotteries organized by the Government of India or Government of a State and as regards Entry 62 in the State List though it refers to taxes on entertainment, amusement, betting and gambling, it does not specifically include lotteries organized by the Government of India or the Government of a State and rather Entry 97 of the Union List refers to any other matter not enumerated in List II or III including any tax not mentioned in either of those lists. In the backdrop of the aforesaid legal position, he submits that by virtue of Article 265 of the Constitution of India, no tax can be levied either by a State, save and except by authority of law, and therefore, the levy of tax by the State of Maharashtra under the Maharashtra Tax on Lotteries Act 2006 is without authority of law and is ultra vires of the Constitution of India.

8. Per Contra, learned Advocate General Shri Kumbhakoni representing the State of Maharashtra submits before us that the fields of legislation which are conferred by virtue of the entries in the lists included in the Seventh Schedule need to be widely construed. He would endeavour to draw a distinction between the entries relating to Taxation and entries relating to Regulation. The submission of the learned Advocate General is that in the entries which amount to regulation, “incidental and ancillary” aspects would be covered and his submission is that the taxing element is clearly distinct from an act of regulation and Regulation does not necessarily mean taxing and also vice versa. It is his submission that the Lotteries (Regulation) Act 1998 has been enacted by the Parliament to regulate the lotteries and to provide the matters connected therewith. However, according to him, this does not cover the element of taxation. According to him, the said enactment imposes a prohibition on a State Government organizing, conducting or promoting any lottery, except when it complied with the conditions stipulated in Section 4 of the said enactment. According to him, the said enactment, therefore, regulates the organization, conduct or promotion of lottery and wherever a lottery is organized, conducted or promoted, in contravention to the provisions of the Act, by any Department of the State Government, it invites penalty as stipulated in the said enactment. However, according to the learned Advocate General, this enactment does not deal with any power of taxation. As against this, according to him, the Maharashtra Act No.53 of 2006 is an Act to provide for the levy and collection of tax on the lotteries and matters connected and this enactment authorizes the State to levy and collect tax on lotteries of the State as well as lotteries of other States which are conducted as per provisions of Lotteries (Regulation) Act 1998.

The learned Advocate General has taken us through the scheme of the Maharashtra Enactment where Section 3 is a taxing section and authorizes a levy and collection of taxes on the “lottery schemes” specified in column 2 of the Table at the rate specified. The said tax is directed to be paid by the promoter and such payment has to be made in advance in respect of a scheme of which the tickets are sold in State of Maharashtra. He would heavily rely upon the judgment in case of B.R. Enterprises, to submit that the State lotteries are placed in distinct entries in the list of Seventh Schedule and he relied upon the following observations of the Apex Court.

“As revealed from Anraj case­I (supra), some of the States sought permission of the Union as a policy to raise its revenue through these lotteries, which was conferred by the Presidential Order under Article 258 (1), though it records, the State could have exercised their discretion as a policy to have their own lotteries without such permission in view of its extended executive power under Article 298. It further reveals, till the Parliament makes any law, decision to start its lottery or to close it is exclusive within the executive power of each State. This is because it is the policy decision of a State which has to decide as a principle whether it desires to collect in this form the revenue or not. The benefit of Article 298 is, it is extra territorial, applicable beyond its territory, it is for this State lotteries are placed in Entry 40 List I. So in a federal structure, Union has to play a role to coordinate between one State with the other. So by regulation, it has to sub­serve the objectives. Union cannot enforce a State to gamble if such a State does not want to gamble. To run its own lotteries or to close it is left on the discretion of each State. It is each State which has to decide its policy and has to be concerned about its subject. In any case, the Union cannot force any States that it must run its own lotteries. But control of State lotteries running in the territory of other States is left on the Union. State cannot restrict sales of lotteries organized by other States even in its territory unless authorized by the Union. This difficulty was felt by the State which is indicated in the Anraj case­I (supra). That seems to be the reason that the Parliament has delegated this power to the State under Section 5. In this background, we have to see, whether this delegation could be constituted to be such as amounting to delegation of its essential legislative power and that too unguided or unbridled. As we have said to interpret a provision, its pith and substance, its objects and reasons should be gathered, and it is that interpretation which sub­serve the object of the Act should be accepted. The Preamble of the Act states :

“to regulate the lotteries and to provide for matters connected therewith and incidental thereto”

Thus, the object of this enactment is to regulate the State lotteries and other connected matters therewith”.

9.  The learned Advocate General would fall back on the judgment of the Division Bench of this Court in case of N.V. Marketing Pvt.Ltd vs. State of Maharashtra & Ors (supra), and according to him, the said judgment has clearly answered the challenge to the competency of the State Legislature to enact the impugned legislation and according to him, the said judgment has, in detail construed the entries in the List I and List II and has rightly declined reliance on Entry 97 of List I of Seventh Schedule which is a residuary entry and has clearly recorded a finding that power to tax is not an incidental power and therefore, cannot be traced to residuary power of the Parliament. He would thus submit that the observation of the Division Bench to the effect that if the power to tax in relation to a subject is clearly mentioned in List II of the Seventh Schedule of the Constitution, it would not be open to the Parliament to legislate, based on the assumption of the residuary power or based on the judgment of the Hon’ble Apex Court. He would submit that the Division Bench has rightly concluded that Entry 62 of List II of the Seventh Schedule empowers the State legislature to impose tax in relation to the lotteries because admittedly, the lotteries are included within the ambit of the meaning of the term”betting”. The learned Advocate General also makes a statement before us that the said judgment delivered by the Division Bench is assailed before the Hon’ble Apex Court in case of M/s. KENLOTT GAMING SOLUTIONS PVT.LTD & ANR VS. COMMISSIONER OF SMALL SAVINGS & LOTTERIES AND ORS in Special Leave to Appeal (Civil) No. 23985­23986 of 2009 and on 5th October 2009, and the Hon’ble Apex Court has granted leave and has refused the stay. Further, according to the learned Advocate General, the judgment delivered by the Karnataka High Court has also been taken up to higher Court in Special Leave to Appeal (Civil) 19205-19215 of 2011 and by an order dated 2nd December 2011, leave has been granted by the Hon’ble Apex Court and the operation of the impugned judgment to the extent of direction with regard to refund of the amount already deposited has been stayed.

In light of the pendency of the matter before the Apex Court, the learned Senior counsel Shri Raman made a request before us to defer the hearing of the petition till the decision of the Hon’ble Apex Court. That is vehemently opposed by the learned Advocate General and even we are not inclined to grant the same and we have refused the request at the outset since the writ petition is pending since 2007.

10.  With the assistance of the learned counsel for the parties, we have carefully gone through the writ petition as well as series of judgments which have been cited before us. The word “lottery” is defined as in Collin’s dictionary as ‘a type of gambling gone in which people buy numbered tickets. Several numbers are then chosen, and people who have those numbers on their tickets win a prize. Business dictionary defines “Lottery” as type of gambling in which winners are chosen by drawing of lots, from among those who have paid money to participate. In M/s. B.R. Enterprises Vs. State of Uttar Pradesh (supra) the Hon’ble Apex Court had proceeded to examine what is lottery and what are the ingredients in the sale of lottery tickets, it specifically observed as follows :

In Words and Phrases (Permanent Edn.) Vol. 25A at 439 :

“A `lottery’ is a species of gambling.” At Page 444 :

“The lottery statutes were enacted to suppress the widespread evil of gambling in lotteries and to allay and rub the gambling spirit of the public and thus prevent waste of money needed for more substantial purposes, the term `lottery’ as popularly and generally used referring to a gambling scheme in which chances are sold or disposed Of for value and the sums thus paid are hazarded in the hope of winning a much larger sum, a scheme for the distribution of prizes by chance.”

At Page 445 :

“The term `lottery’ in law is of wide signification. In Homer v. United States, 1.3 S.Ct. 409, 147 U.S. 449, 37 L,.Ed 237, Mr. Justice Blatchford discussed various definitions of lottery, and among others approved that found in Worcester’s Dictionary, in which it is defined to be “game of hazard in which small sums are ventured with the chance of obtaining a large value, either in money or other articles.”

“A lottery has been described as a scheme for distributing prizes by lot or chance.”

“In Webster’s Dictionary a lottery is defined to be `A distribution of prizes by lot or chance’­and a similar definition is given in Johnson. Such definitions are, in our opinion, correct.”

In Black’s Law Dictionary, 6th Edn., at p. 947 :

“A chance for a prize for a price, A scheme for the distribution of a prize or by lot or chance, the number and value of which is determined by the operator of lottery.”

So, we find three ingredients in the sale of lottery tickets, namely, (i) prize (ii) chance and (iii) consideration.

The term “lottery” has been defined under the Lotteries (Regulation) Act 1998 to mean a scheme, in whatever form and by whatever name called for distribution of prize by lot or chance to those persons participating in the chance, of a prize by purchasing tickets.

11.  With the aforesaid observations in mind, the Hon’ble Apex Court itself has examined the scheme of the Lottery Regulation Act 1998 which is the scheme to regulate State Lotteries and made following observations :-

In Section 2(b) lotteries are defined to be a scheme for distribution of prizes by a lot or chance. This definition itself recognizes that even in State lotteries the prizes are to be collected by chance without any skill, hence gambling in nature. Sections prohibits that no State lotteries can be organized without the condition stipulated under sub-sections (a) to (k) of Section 4. Section 4 provides, the conditions to be complied with by the State lotteries. To initiate any State lottery it is left to the policy of each State, for this the Act is silent. The only control is, in case it decides, then it must follow the conditions as laid down under Section 4. Next comes Section 4 which is subject matter of challenge, the delegation of power to the State to prohibit the sale of lottery tickets organized by every other State. If a State desires not to subject its people to the lottery gambling, it has no power to restrict lotteries organized by other States. It is to remove this mischief the power is conferred through delegation to the States to do it in terms of its own policy. By virtue of this, now the State Government can prohibit sale of lottery tickets of every other States within its territory. Next, Section 6 seeks strict compliance of Section 4. Under this the Central Government may prohibit and State lottery which is being conducted in contravention of the conditions as laid down under Sections 4 or 5. Section 7 shows the rigor of this Act by making it a penal offence as against all, who violate the provisions of this Act, may be the Head of the Department of the Government or the agent, promoter or trader, to be punishable with two years rigorous imprisonment. Section 8 makes such an offence cognizable and non­bailable. Similarly, Section 9 deals with offences committed by the Companies Section 10 entrusts the Central Government power to give directions to the State Government for carrying into execution the provisions of this Act, Rule or Order. Sections 11 and 12 are the rule making power entrusted to the Central and the Government respectively. Section 13 repeals the Ordinance. Thus, the whole Act makes clear that the subject it is dealing is gambling in nature. The object of the Act is not to control the policy decision of each State to start or to close it lotteries, but to regulates it in case a State decides to run its own lottery through modalities and conditions laid down therein. Emphasis of the whole Act is to abide by the condition strictly if you want to run a lottery. Thus, regulation’s through conditions to eliminate even the remotest possibility of mal practices by providing stringent measures for its compliance. Perusal of the Act reveals, the scheme of the Act is limited in its application, and it admits the subject it is dealing is gambling in nature. As we have said, decision to collect or not to collect revenue through State lotteries is exclusively within the policy decision of the State and for this, neither the Union nor the Parliament interferes nor there is any indication under the Act.

The three entries which are relevant for deciding the issue of legislative competency of the State Legislature found in the Seventh Schedule reads thus :

List I – Entry 40 – Lotteries organized by State

List II – Entry 62 – Taxes on luxuries included taxes on entertainment, amusement, betting and gambling

List II – Entry 34 – Betting and Gambling

12.  In H. Anraj Etc Vs. Government of Tamil Nadu 6, the issue involved was whether the Sales Tax can be levied by the States on sale of lottery tickets. The Bench of two Judges held that a lottery involved two elements i.e. (a) Right to participate in the lottery draw and (b) right to win the prize depending on chance. It was held that the second right was a chose in action and therefore, not goods for the purposes of levy of sales tax. The first was held to be a transfer of a beneficial interest in movable goods and was held to fall within the meaning of Article 366 of the Constitution and consequently subjected to sales tax. A reference came to be made before the Hon’ble Apex Court in light of the decision of the High Court of Delhi in case of Haryana Lotteries Vs. Government of NCT,7 which held that lottery tickets were goods and liable to Delhi Sales Tax, 1975. In an appeal preferred by by Sunrise Associates (supra), a reference order was made on the prima facie view that there was no reason to split a lottery into two separate rights and therefore, the judgment of H. Anraj, etc Vs. Government of Tamil Nadu (supra) requires consideration, since the decision in case of H. Anraj (supra) was already approved by a Three Judges Bench in case of Vikas Sales Corporation Vs. Commissioner of Commercial Taxes & Anr 8, it was felt necessary that the matter be heard by Constitution Bench.

13. The Hon’ble Apex Court in M/s.Sunrise Associates Vs. Government of NCT, Delhi (supra) therefore, proceeded to decide the issue and held that H. Anraj Vs. State of Tamil Nadu has incorrectly held that the sale of lottery tickets involve sale of goods. It was held that there was no sale of goods within the meaning of Sales Tax Act of different States but at the highest it was the transfer of actionable claim. The Constitution Bench categorically held that a lottery having been held to be a chance for a prize, sale of a lottery ticket can only be a sale of that chance and there is no other element involved. The observation of the Hon’ble Apex Court to the following effect needs a reproduction.

“A lottery having been held to be in essence a chance for a prize, the sale of a lottery ticket can only be a sale of that chance. There is no other element. Every right can be sub-divided into lesser rights. When these lesser rights culminate in a legally recognizable right, it is the letter which defines the right. The right to participate in the draw is a part of the composite right of the chance to win and it does not feature separately in the definition of the word “lottery”. It is an implicit part of the chance to win. It is not a different right. The separation is specious since neither of the rights can stand without the other. A draw without a chance to win is meaningless and one cannot claim a prize without participating in the draw. In fact the transfer of the chance to win assumes participation in the draw. The Supreme Court of Appeals of West Virginia, in West Virginia in State of West Virginia Vs. John Wassick 156 W.Va.128, 191 S.E.2d 283, held that “free plays” which could be won predominantly by chance for consideration by operating multiple coin pinball machines for cash payoffs was a prize and the pinball machine constituted the lottery. This indicates that a draw is merely a method of holding the lottery just as a pinball machine may be a method of holding the lottery and does not constitute a separate right.

There is no value in the mere right to participate in the draw and the purchaser does not pay for the right to participate. The consideration is paid for the chance to win. There is therefore no distinction between the two rights. The right to participate being an inseparable part of the chance to win is therefore part of an actionable claim”.

14. The petitioner before us is a proprietor of a marketing firm carrying on business of selling tickets of lotteries organized by Government of Andhra Pradesh and Nagaland in the State of Maharashtra. The sale of such tickets in State of Maharashtra was subjected to sales tax on the footing that the lottery tickets were ‘goods’ within the meaning of Sales Tax Act. The power to levy sales tax was derived from Entry 54 of Schedule II of the Constitution which related to tax on sale or purchase of goods other than newspapers. Since the lottery was treated as goods, the State of Maharashtra was empowered to levy and collect the tax on sale of lottery tickets in State of Maharashtra in respect of tickets of lotteries which were organized by other States. The lottery tickets, therefore, came to be included in Schedule C of Part A of Bombay Sales Tax Act under 151-A and the tax was charged @ 13% + surcharge. The State of Maharashtra amended the Sales Tax by inserting Section 40A which provides for lumpsum payment in lieu of tax on lottery tickets. It also provided for a fixed tax related to draw of lottery. The incidence of tax was thus shifted from sale of goods i.e. the tickets to a ‘draw’. This amendment was a subject matter of challenge in Writ Petition No.129 of 2001 and the said amendment came to be struck down. Subsequent thereto, Maharashtra Act No.13 of 2004 purporting to amend the enactment by inserting Section 40 A-1 shifted the incidence of tax by introduction of the words “turnover of sale of lottery tickets”, per draw of a particular scheme, slab wise and providing of quantum of tax at 60% of the taxable turnover + surcharge and/or lumpsum payment per draw, as per the table, whichever is higher. In the mean time, the Hon’ble Apex Court by the decision in Sunrise Associates Vs. Government of NCT, Delhi, (supra), settled the issue that lottery tickets are not goods within the meaning of Sales Tax Act.

15. The Apex Court in unequivocal terms held that sale of lottery tickets does not involve sale of goods. Resultantly, when the Maharashtra Value Added Tax 2002 repealed the Bombay Sales Tax Act, the lottery tickets were excluded from the purview of said enactment. In the mean while, the Lotteries Regulation Act, 1998 came to be enacted by the Parliament to regulate the lotteries and to provide for matters connected therewith and incidental thereto. The said enactment prohibited the State Government from organizing, conducting or promoting a lottery. Section 4 of the said enactment authorized the State Government to organize, conduct or promote the lottery subject to the conditions stipulated therein. Section 5 of the said enactment authorized the State Government to prohibit the sale of tickets of a lottery organized, conducted or promote by every other State, meaning thereby that it empowered the State to forbid within its territorial limit, sale of lottery tickets of any other State. The said power under Section 5 of the Act resulted into several States prohibiting sale of tickets of other States and was subject matter of Writ Petitions in various High Courts. The said writ petitions ultimately were brought to the Hon’ble Apex Court wherein the Court was called upon to adjudicate the issue as to what is the character of “State lotteries”? And if such lotteries are gambling in nature, does it lose its character as such when it takes on the cloak of State lotteries and whether it sheds its character as res extra commercium. The Hon’ble Apex Court considered the whole gamut of sale of lottery tickets in India, both private and State and examined the issue in the backdrop of the accepted position that basically lotteries are gambling and its business is res extra commercium and to shed off this in the interest of State, Revenue has been finding avenue to legitimise it through some legitimization under the law to eliminate the impediment in collecting the State Revenue and dilute, if possible, the exploitation of people. On a detail analysis of the entire business of Lottery carried out by private or by State, the Hon’ble Apex Court by keeping in mind the ill ­impact of the lotteries of the public at large in the country as well across the globe, took note of the fact that some permitted and protected lottery transactions under the garb of benefit for charitable purposes or augmenting State Revenues has always found its foundation in the Indian scenario. However, as an answer to the question posed before it, the Hon’ble Apex Court observed thus :

“Thus, the question which remains is, if any State decides that it does not want any lotteries but if it feels helpless as having no jurisdiction over the lotteries organized by other States, what is the way out? This can only be done by Parliament or by entrusting this power on such State desiring so which has been done through Section 5. In this background, for the helplessness of a State as recorded in the Anraj case­ I (supra) remedy is provided by entrusting this power on the State under the impugned provision. This help such State to achieve its objective of lottery (gambling) free zone within its territory. A well concerned remedy. Next question is what could have been the guideline ? If State lotteries are gambling and it cannot be treated as ‘trade and commerce’ at common parlance for any free right under the Constitution. Such right though recognized under Article 298 so other States may continue to enjoy till prohibited by valid law, and if any state want within its State lottery free zone and for which the power is entrusted to such State, it cannot be said in this setting and background and the nature of the subject that such a delegation is of its essential legislative power. The only guideline necessary in such delegation is to see State does not pick and choose one State from the other, which guideline is already provided in this Section. It provides that such a ban could only be if it is applied to every other State. Only residual field of attack so far this delegation could be, which has been attacked in this case, that State could on one hand ban lotteries of every other State but run its own lotteries. It is argued while a State bans lotteries of other States not to permit any gambling activity in the public interest as a policy but this very public interest is flouted by having lotteries of its own. It is true that unless this provision is read down to mean a State can only ban lotteries of other States when it bans as a policy its own lotteries it is bound to be subjected to the vagaries as pointed out and on deeper scrutiny it may not successfully stand. But by reading down the provision, which has to be read that it is only that State which decides lottery free zone within its State can prohibit lotteries of other State clearly provides the guidance for the exercise of such a power. It is inbuilt and inherent in the provision itself in view of the scheme of the Act and nature of subject in issue.”

In the wake of the said decision, the State of Maharashtra enacted Act No.53 of 2006 to provide for levy and collection of tax on the lotteries and the matter connected therewith or incidental thereto. The said enactment was brought in force to provide for levy and collection of tax on lotteries of the State as well as lotteries of other States, conducted as per provisions of the Lotteries (Regulation) Act 1991 and which was marketed in the State of Maharashtra. The term “Lottery” was assigned the same meaning as assigned in the Lotteries (Regulation) Act 1998. The term “Promoter” was intended to mean the Government of any State or an Union Territory or any country organizing, conducting or promoting a lottery and included any person appointed as first importer for marketing lottery tickets in the State of Maharashtra on behalf of such Government or country where such Government or country is not directly marketing or conducting lotteries schemes in the State. The said enactment authorizes the State to levy and collect the tax on the lottery scheme at the rates specified in Section 3. This covered a scheme of weekly, fortnightly, monthly lottery scheme and the bumper lottery scheme. The tax was levied on the promoter and it was made imperative for the promoter to submit to the tax authorities a statement relating to lottery scheme of which tickets are sold in the State and to pay in advance the amount of tax payable under the Act as per the scheme.

The validity of the said enactment was subject matter of challenge in a group of petitions before the Division Bench of this Court and the lead petition being N.V. Marketing Pvt.Ltd Vs. State of Maharashtra (supra). The present petition was grouped with the said petitions but remains undecided. The petitioners before the Court were the distributor of lottery tickets for sale in State of Maharashtra of various States organizing, conducting and promoting their own lotteries. It was an admitted fact that the State of Maharashtra itself is also organizing, conducting and promoting its own lotteries. The challenge to the Maharashtra Tax on Lotteries Act, 2006 was on the ground that the legislature of the State of Maharashtra lacks the legislative competency to enact the law relating to State lotteries including the law relating to taxation and therefore, it was assailed as beyond the legislative competency of the legislature of the State. Another ground on which the enactment was attacked was that it was colorable exercise of legislative power inasmuch as it was another method of levying taxes on lottery tickets. The third ground on which the Act was assailed was that it sought to levy the taxes on lottery coupons/tickets, which is being collected in advance in respect of which each draw in the lottery scheme and since the lottery was being conducted outside the State of Maharashtra, the law had extra territorial application.

16. The Division Bench of this Court dealt with all the issues elaborately. Dealing with the competency of the State legislature to enact the said legislation, the Hon’ble Division Bench decided the arguments advanced by the parties assailing the said legislation which was to the effect that the subject lotteries organized by Government of India or Government of State, falls within Entry 40 of List I in the Seventh Schedule and it was only the Parliament which was empowered to enact the law relating to lotteries either by the Government of India or the Government of a State or any law relating to such tax on the lotteries. Reliance was placed before the Division Bench on the judgment in the case of H. Anraj vs. State of Maharashtra (supra) and H. Anraj Vs State of Tamil Nadu (supra), and the submission that the lotteries organized by the State are necessarily excluded from betting and gambling and covered by Entry 62 of List II of Seventh Schedule. The State of Maharashtra traces the existence of the Maharashtra Lotteries Act to Entry 62 of List II of Seventh Schedule and relied on the judgment in case of State of West Bengal vs. Kesoram Industries 9. The State also made an elaborate submission that the tax is not collected on the sale of lottery tickets, but the tax is collected in relation to lottery schemes,  once tickets are imported in the State of Maharashtra. The Division Bench perused the scheme of the enactment. It also construed Entry 62 of List II of Seventh Schedule.

The petitioner before the Division Bench did not dispute that lottery is betting. The argument of the petitioner before the Court was that State lacked competency in light of existence of Entry 40 in list I.

The Division Bench of the Court held that the entire argument is misconstrued and observed thus :

“According to the petitioners, because the power to legislate in relation to lotteries organized by the Government of India or the Government of State is vested in Parliament, the State legislature cannot impose tax in exercise of its legislative power under Entry 62 in relation to the lotteries. It is submitted that Entry 34 of List II of the Seventh Schedule of the Constitution empowers the State Government to legislate in relation to betting and gambling, but because of Entry 40 in List I of the Seventh Schedule of the Constitution, lottery is excluded from the ambit of the term betting in Entry 34 of List II of the Seventh Schedule and it also stands excluded from the ambit of the term betting in Entry 62 of List II of the Seventh Schedule. In our opinion, the entire argument is misconceived and against the settled law. In nutshell, the argument of petitioners is that because of Entry 40 in List I of the Seventh Schedule, the Parliament has power to regulate lotteries run by the State Government, and therefore, it excludes State lotteries from the ambit of the term Betting not only from Entry

34 in List II of the Seventh Schedule but also from Entry 62 of List II of the Seventh Schedule. The scheme underlying the Seventh Schedule of the Constitution has been considered in a judgment by the Constitutional Bench of the Hon’ble Supreme Court in the case State of W.B. Vs. Kesoram Industries Ltd. And others, (2004)10 Supreme Court Cases 201.

17. By reproducing the relevant paragraph from the judgment of the Hon’ble Apex Court, the Division Bench concluded that because of Entry 40 of List I of Seventh Schedule, the State legislature does not have power to legislate in relation to lotteries organized by the Government of India or Government of State under Entry 34 of List II of Seventh Schedule, but because of that, the said legislature is not denuded of its power under Entry 62 of List II of Seventh Schedule to impose tax in relation to lotteries organized by the Government of India or other States under Entry 62 of List II treating it as betting. The Division Bench again re-iterated that there is no debate that lottery amounts to betting since it was an admitted position.

As far as the power of taxing is concerned, the Division Bench dealt with the submission advanced before it that the Parliament will alone have the legislative competence to levy tax under Article 248 by taking recourse to Entry 97 of List I of Seventh Schedule. This submission also did not find favour with the Division Bench and it observed thus :

In our opinion, this submission has also no force, because power to tax is not an incidental power and under the residuary power the Parliament will be entitled to impose tax only if that power is not specifically vested in the State legislature by any entry in List II of the Seventh Schedule. We can draw support for this conclusion reached by us, by what is observed by the Supreme Court in paragraphs 100 to 107 of its judgment in the case of State of W.B. Vs. Kesoram Industries Ltd. And others referred to above, they read as under:­

100. Article 265 mandates no tax shall be levied or collected except by authority of law. The scheme of the Seventh Schedule reveals an exhaustive enumeration of legislative subjects, considerably enlarged over the predecessor Government of India Act. Entry 97 in List I confers residuary powers on Parliament. Article 248 of the Constitution which speaks of residuary powers of legislation confers exclusive power on Parliament to make any law with respect to any matter not enumerated in the Concurrent List or the State List. At the same time, it provides that such residuary power shall include the power of making any law imposing a tax not mentioned in either of those lists. It is, thus, clear that if any power to tax is clearly mentioned in List II, the same would not be available to be exercised by Parliament based on the assumption of residuary power. The seven­-Judge Bench in Union of India V. Harbhajan Singh Dhillon ruled, by a majority of 4:3, 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. According to Seervai (Constitutional Law of India, 4th/Silver Jubilee Edn. Vol.3, para 22.191):

18. The Division Bench thus concluded that the power to tax in relation to the subject clearly mentioned in List II Entry 62 of Seventh Schedule of the Constitution and the same would not be available to be exercised by the Parliament relying upon residuary Entry i.e. Entry 97, specifically when Entry 62 of List II of Seventh Schedule specifically empowers the State Legislature to impose tax in relation to lotteries because admittedly lotteries are included within the ambit of the term “betting”. With the aforesaid reasoning, the Division Bench concluded that the said enactment was perfectly within the legislative competence of the State Legislature in light of the specific entry traceable in the State list relating to taxation and rejected the challenge as to the competence of the State legislature. The other two submissions for assailing the impugned legislation also did not find favour with the Division Bench and when it concluded that what is taxed is betting and gambling, in the backdrop of the power flowing from Entry 62 of List II and the Act does not levy tax on draws or sale of tickets but the levy of tax is on betting and gambling, which is offered within State of Maharashtra by organizing sale of tickets or participation in the lottery.

19. We have no reason to differ from the reasoning in the Division Bench judgment. Though a serious attempt is made by the learned Senior Counsel to convince or to take a view contrary to the Division Bench judgment and specifically by inviting our attention to the observations made by the Karnataka High Court while dealing with the challenge to a similar legislation, we are not impressed by the said arguments. We do not find any error in the observations of the Division Bench which is based on the foundation that since lottery is gambling, Entry 62 of List II gets attracted. We are in agreement with the learned Advocate General who had canvassed before us the submissions that the fields of legislation in the entries either in the Union List or in the State List are distinct when it provides for taxation and when it intends to confer a power of Regulation. List I of Entry 40 which authorizes the Parliament to regulate the lotteries organized by the Government of India or Government of a Sate necessarily do not cover a taxing element. As a result, perusal of the Lotteries (Regulation) Act 1988 only regulates the lotteries and the Regulation is in form of the stipulation of terms and conditions when the Government organizes, conduct or promotes a lottery. The intention of the Parliament in introducing Section 5 in the said enactment is very apparent It authorizes the State Government to prohibit the sale of tickets of a lottery organized, conducted or promoted by every other State. Resultantly, the State Government is empowered to prohibit or restrict within its State the sale of lottery tickets of any other State. The State has invoked Entry 62 of List II while enacting the impugned legislation. This entry specifically empowers the State to tax on betting and gambling. Though the learned Senior counsel made a serious attempt to submit before us that a presumption that lottery is betting and gambling, is erroneous but once the Division Bench of this Court had fallen back on Entry 62 of List II, we do not find any error in the said conclusion.

20. In such circumstances, we do not find any flaw in the observation of the Division Bench when it proceeds to hold that lottery falls within the purview of betting and therefore, Entry 62 List II is invoked by the State Legislature to enact a law imposing tax on betting and gambling. We are not convinced by the argument of the learned senior counsel to deviate from the reasoning of the Division Bench of this Court and to fall in line with the judgment of the Karnataka High Court. We are of the specific view that the judgment delivered in N.V. Marketing Pvt.Ltd (supra) covers the issue raised in the petition which has pronounced the said statute to be a valid piece of legislation and the State legislature being empowered to enact the same. In any contingency, the judgment delivered by the Division Bench of this Court is subject matter of challenge before the Hon’ble Apex Court and since we are not sitting in an Appeal over the Division bench judgment delivered by this Court, we are not inclined to re-examine it as if we are sitting in Appeal. In such circumstances, we do not find force in the submission of the learned senior counsel and we are inclined to dismiss the Writ Petition and hold and declare that the Maharashtra Tax on Lotteries Act 2006 is well within the legislative competence of the State legislature and Writ Petition deserves to be dismissed and is accordingly dismissed.

Rule discharged.

No order as to costs.

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