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Recently, the state legislatures of Karnataka and Kerala formulated laws to impose taxes on lotteries. The legislation in question is the Kerala Tax on Paper Lotteries Act, 2005 and the Karnataka Tax on Lotteries Act, 2004. These acts were challenged, and their respective High Courts held that the state legislatures lacked the competence to make laws to impose taxes on the lotteries. From 2010 to 2011, the Karnataka High Court passed impugned orders. Court held that the government lacked the competence to make a law imposing taxes on lotteries while directing them to refund the amount deposited to them by the states that had organized the various lottery schemes. Even Kerala High Court passed effective orders during 2020-2021. Court held that the law imposing a tax on lotteries was unconstitutional and held the 2005 Act to be invalid.

These decisions of the High Courts were then appealed by the States to the Apex Court. The matter was brought before the bench of justices MR Shah and BV Nagarathna. The bench gave the judgment in favour of the states and set aside the orders issued by the High Courts. In their view, it was clear that the state legislatures were competent to make laws for imposing taxes on lotteries, and the Acts that were in question were not unconstitutional and were valid. They said that the states had the power and competency by virtue of Entry 62 in List II of the Seventh Schedule of the Constitution of India as it allows the state to impose a tax on betting and gambling activities and observed that the tax that the legislation sought to impose came under the purview of said entry.

The Supreme Court also observed that the High Courts were wrong in their finding that the Acts in question were unconstitutional and concluded that the activity of lottery comes under the purview of gambling under Entry 62 of List II. The court also held that any lottery scheme that any State Government or the Central Government organizes in a state with permission from the State Government of said state, the State Government has the power to impose taxes on the same. The bench also clarified in the judgment that Entry 40 of List I pertains to only the regulation of the lotteries and not for the imposition of taxes on the lotteries by the Parliament and also said that it cannot be expanded to include the same while noting that there is not a single entry in the Union List which allows for the imposition of taxes on activities pertaining to betting and gambling while there is in the State List as mentioned above (Entry 62 of List II).

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Sushant Harit

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