ORDER
Mohan Shantanagoudar, J.
1. As the common questions of fact and law arise for consideration in these writ petitions, they are taken up together for hearing and are decided by this order.
2. The petitioners herein are the States of Meghalaya, Sikkim, Arunachala Pradesh, Nagaland and promoters of the lotteries. The petitioners are organising, promoting and conducting lottery under Entry 40 of List I of the Seventh Schedule of the Constitution of India and under the Lotteries (Regulation) Act, 1998 (for short hereinafter referred to as the 'Central Act').
3. The petitioners are challenging the validity and vires of the Karnataka Tax on Lotteries Act, 2004 (for short hereinafter referred to as the 'State Act') promulgated by the respondent-State which imposes tax on lotteries, of the petitioners-States. According to the petitioners, the legislation has been passed without any jurisdiction or legislative competence in respect of taxes and thus deserves to be set aside as such.
4. It is contended by Sri Soli Sorabjee, learned senior advocate appearing for petitioners that Entry 40 of List I of Seventh Schedule to the Constitution of India, deals with lotteries organised by the Government of India or Government of State and that therefore any legislation pertaining to lottery has to be made only by the centre. He relied upon the judgments of the Apex Court in the case of H. Anraj and Ors. v. State of Maharashtra reported in : [1984]2SCR440 and in the case of State of Haryana v. Suman Enterprises reported in : (1994)4SCC217 , to contend that the subject 'Lotteries organised by the Government of India or the Government of a State' has been taken out from the legislative field comprised by the expression 'betting and gambling' of the individual State and is reserved to be dealt with by Parliament; that the subject covered under Entry 34 of List II relating to betting and gambling involved in State run lotteries is taken out from the legislative field of the State Government in view of the observations made by the Apex Court in the cases mentioned supra; that since the 'Lotteries organised by the Government of India and Government of State' has been made a subject within the exclusive legislative competence of Parliament, it must follow, in view of Articles 246(1) and (3), that no Legislature of a State can make a law touching lotteries organised by the Government of India or the Government of State. He further submitted that Section 6 of the State Act imposes tax on draws and the draws invariably take place outside Karnataka State and as nothing relating to lotteries is done in Karnataka State, except selling of lottery tickets, Karnataka State has no competence to levy tax on other State Governments within whose jurisdiction the draws take place. In this connection, he relied upon the judgment of the Bombay High Court in the case of Jiwankumar Sitaram Sondhi v. The Commissioner of Sales Tax Maharashtra State and Ors. in W.P. No. 129/2001, disposed 30.3.2001. He further contended that tax cannot also be imposed on lottery tickets as they are not the goods but are actionable claims as held by the Supreme Court in the case of Sunrise Associates v. Govt. of NCT of Delhi and Ors. reported in : AIR2006SC1908 , Kumari Aparanji Dinakar, learned advocate also argued in support of the aforementioned contentions.
Per contra, it is contended by Sri Vijayashankar, learned senior advocate appearing on behalf of the respondent-State that the State has got legislative competence to enact the Act in question, inasmuch as by virtue of the said enactment the State has imposed tax on betting and gambling; Entry 40 of List I does not prohibit the respondent-State to tax on betting and gambling; that the legislation in question is traceable to Entry No. 62 of List-II; that the Central Act (Lotteries (Regulation) Act) deals only with Regulation of Lotteries and not taxes; that the Central Act merely regulates the conduct of the lottery and it has nothing to do with the tax on lottery; that the tax imposed is on betting and gambling and not on lottery tickets; no entry is found either in List I or List III to enable the Parliament to enact taxing laws relating to betting and gambling; that the draw is only a measure of taxation and that therefore it cannot be construed Act to mean that the tax is imposed on draw itself as is clear from the plain reading of provisions of Section 6(1) of the State Act; that after the promulgation of the State Act, no sales tax is levied on sales of lottery tickets in Karnataka under the provisions of the Karnataka Sales Tax Act. On these grounds, he prayed for dismissal of writ petitions. He relied upon various judgments including the judgments in the case of State of Bombay v. R.M.D. Chamarbaugwala and Anr. reported in : [1957]1SCR874 , in the case of R.M.D.C. (Mysore) Private Limited v. State of Mysore reported in : [1962]3SCR230 , and in the case of B.R. Enterprises v. State of U.P. reported in : (1999)9SCC700 .
5. It is clear from the observations of the Apex Court in the case of H. Anraj and Ors. v. State of Maharashtra reported in : [1984]2SCR440 that the expression 'betting and gambling' includes and has always been understood to have included the conduct of lotteries. Thus, the subject 'Lotteries organised by the Government of India or Government of State' has been taken out from the legislative field comprised by the expression 'betting and gambling' and is reserved to be dealt with by Parliament. In the aforementioned judgment, it is also observed that in view of Articles 246(1) and (3), that no Legislature of a State can make a law touching the lotteries organised by the Government of India or the Government of State. Entry 34 of List II pertains to the subject 'betting and gambling. As held by the Apex Court in the aforementioned judgment, the words 'betting and gambling' have to be read harmoniously with the Entry 40 of List I relating to 'Lotteries organised by the State and Centre'.
6. In H. Anraj's Case, the question before the Apex Court was whether ban can be imposed by the State of Maharashtra, on sale of lottery tickets within the State of Maharashtra, conducted by the other States. In this context, the Apex Court held that the State cannot impose ban on the sale of lotteries conducted by the Government of other States within the State of Maharashtra as the regulation of lotteries is the subject to be exclusively dealt with by the Parliamentary Legislation traceable to Entry 40 of List I. As there was no Parliamentary Legislation banning of the lotteries in Maharashtra State, the High Court struck down the order impugned in the said matter. In the said mater the subject relating to tax on betting and gambling, amusements, entertainment was not involved. The order impugned in the said matter was relating to regulation of lotteries in Maharashtra State by prohibiting the other State Lotteries in Maharashtra.
In the case of State of Haryana v. Suman Enterprises and Ors. reported in : (1994)4SCC217 , the similar question arose. In the said matter, the State of Haryana had issued notification banning the lotteries of other States. The Apex Court in that context has held that the regulation of lotteries and gambling is not a State subject, but it is the subject of Centre and that therefore it would be outside the regulatory power of any other State under Entry 40 of List I for regulating lotteries. In both the aforesaid judgments, the Apex Court was dealing with the question relating to jurisdiction of the State in regulating the lotteries of other States. The imposition of tax on lotteries was not in issue.
7. There cannot he any dispute with regard to the contention of the petitioners that the lotteries organised by the State Government would fall under Entry 40 of List I. However, the petitioners' contention that the legislation in respect of levy of tax on lottery organised by the State Government would not come within the purview of the Entry 62 of List II and would come within Entry 40 of list I is untenable. Looking to the scheme of entries found in Lists I & II of Seventh Schedule, more particularly the purport of Entry 40 of List I, Entry 34 of List II and Entry 62 of List II, this Court is of the opinion that the legislative powers given to the Parliament under Entry 40 of List I are relating to the matters regulating or controlling of lotteries and are not in respect of the levy of tax in respect of lotteries, betting and gambling. The power to enact Legislation in respect of levy of tax on betting and gambling, which includes lotteries, fells under Entry 62 of List II and III not controlled by Entry 40 of List I or by Entry 34 of List II. The State Legislature has exclusive; legislative competence to make the law to levy tax on the aspect of betting and gambling though the same is part and parcel of lotteries, whether organised by the State Government or others. Entry 62 of List II deals with tax on lotteries including the tax on entertainment, amusement, betting and gambling. Entry 62 of List II is the subject of the individual State. There is no entry on the subject relating to tax on betting, gambling, entertainment and amusements either in List I or in List III. Thus, the Centre has not enacted any law covering the subject of tax on entertainment, amusements, betting and gambling as the said subject falls under Entry 62 of List II.
While examining the similar situation in the matter relating to Bombay Lotteries and Prize Competitions Control and Tax Act, 1948 which provided for control on lotteries and to levy tax on lotteries and prize competitions is the State of Bombay and also on prize competitions contained in newspapers and other publication printed and published outside Bombay, the Hon'ble Supreme Court in the case of State of Bombay v. R.M.D. Chamarbavgawala and Anr. reported in : [1957]1SCR874 , has observed thus;-.The next point urged is that although the Act may come under Entry 34, the taxing provisions of Section 12A cannot be said to impose a tax on betting and gambling under Entry 62 but imposes a tax on trade under Entry 60. Once it is held that the impugned Act is on the topic of betting and gambling under Entry 34, the tax imposed by such a statue, one would think, would be a tax on betting and gambling under Entry 62. The Appeal Court has expressed the view that Section 12A does not fall within Entry 62, for it does not impose a tax on the gambler but imposes a tax on the petitioners who do not themselves gamble but who only promote the prize competitions. So for as the promoters are concerned, the tax levied from them can only be regarded as tax on the trade of prize competitions carried on by them.
This, with respect, is taking a very narrow view of the matter. Entry 62 talks of taxes on betting and gambling and not of taxes on betting and gambling and not of taxes on the men who bet or gamble. It is necessary, therefore, to bear in mind the real nature of the tax. The tax imposed by Section 12A is, in terms, a percentage of the sums specified in the declaration made under Section 15 by the promoter or a lump sum having regard to the circulation and distribution of the newspaper or publication in the State.
(emphasis supplied)
8. The Constitution of India delineates the contours of the powers enjoyed by the State Legislature and Parliament in respect of various subjects enumerated in the Seventh Schedule. The rules relating to distribution of powers are to be gathered from various provisions contained in Part XI and the legislative heads mentioned in the three lists of the Schedule. The legislative powers of both the Union and the State Legislatures are given in precise terms. As has been observed by the Apex Court in the case of Association of Natural Gas and Ors. v. Union of India and Ors. reported in : (2004)4SCC489 , the entries in the lists are themselves not powers of legislation, but fields of legislation. However, an entry in one list cannot be so interpreted as to make it cancel or obliterate another entry or make another entry meaningless. If any entry overlaps or is in apparent conflict with another entry, every attempt shall be made to harmonise the same.
A perusal of List II shows that whenever a particular entry was intended to be made subject to an entry in List I or III it has been so stated specifically. Therefore, if an interpretation which compels to have the effect of making a particular entry subject to any other entry, though not so stated in the entry, the same deserves to be avoided unless it is the only possible interpretation. This Court does not think such an interpretation on the entries in question viz., Entry 40 of Union list and Entry 62 of the State list deserves to be placed.
None of the entries in the first list of the Seventh schedule provide competence or jurisdiction to legislate on the subject of tax on lotteries on the Union. The Entry 40 of List I is the general entry and is not an entry empowering the Union to enact tax laws in respect of lotteries.
9. Entry 40 of List I covers the subject relating to lotteries organised by the Government of India, or the Government of State. The Centre has passed the enactment viz., Lotteries (Regulation) Act 1998, in pursuance to the said entry. The petitioners therefore contended that in view of the Central enactment and particularly in view of Entry 40 of List I, the State has no legislative competence to enact the State Act. This Court is unable to agree with the said contention.
Looking to the preamble of the Central Act, it is clear that the same is enacted to regulate the lotteries and to provide for matters connected therewith and incidental thereto. The said enactment nowhere deals with taxes on lotteries. It merely regulates the conduct of the lotteries in the country. Even the Entry 40 of List I does not deal with the aspect of tax on lotteries. Neither List I nor List III does contain any entry relating to tax on lotteries. Even if the Entry 40 of List I overlaps or includes Entry 34 of List II, i.e., betting and gambling, as held by Apex Court in Anraj's Case, cited supra, the same is in any way not connected with Entry 62 of List II. The legislation in question is traceable to Entry 62 of list II which is independent of Entry 40 of List I or Entry 34 of List II.
Entry 34 of List II and Entry 62 of List II have to be read separately as separate powers. In list II itself, the Constitution recognises two independent fields of Legislation, one is the general field of betting and gambling (Entry 34 of List II) and other is special field of tax on betting and gambling including lotteries (Entry 62 of List II). Looking to the scheme of the three lists of Seventh Schedule, it as clear that there are two groups of Entries in each of the three Lists. In List I, Entries 1 to 81 refer to several matters, over which Parliament has authority to legislate. But Entries 82 to 92 enumerate the taxes which could be imposed by a law of Parliament So also, in list II, Entries 1 to 44 form one group mentioning the 'subjects' on which States could legislate. Entries 45 to 63 in List II form another group and they deal with taxes. An examination of these two groups of Entries shows that while the main subject of Legislation finds place in the first group, a tax in relation thereto is separately mentioned in the second group. For example, Entry 22 in list I refers to 'Railways', whereas Entry 89 in List I refers to 'Terminal taxes on goods or passengers, carried by Railway. If Entry 22 is construed as involving taxes to be imposed, then Entry 89 would be superfluous. So also, Entry 18 in List II refers to 'Lands', whereas Entry 45 of List 11 refers to 'Land Revenue'. If land revenue was to fell under Entry 18 of list II, then Entry 45 would be rendered superfluous. The above analysis is only illustrative and not exhaustive. Thus, it is clear that the taxing entries are distinct entries. In this matter also, Entry 34 of list II refers to 'betting and gambling' whereas Entry 62 of list II refers to 'taxes on betting and gambling'. If the tax on betting and gambling was to fall under Entry 32, then, Entry 62 of List II would be superfluous. Thus, though the State Lotteries are taken out from the purview of Entry 32 of list II, the State Legislature is not denuded of its power to enact tax laws in pursuance of Entry 62 of List II. The impugned enactment is covered by Entry 62 of List II, which is a separate and distinct Entry from Entry 34 of List II and Entry 40 of list I. Hence, the State Legislature is fully competent to make the impugned Act.
The Apex Court in the case of All India Federation of Tax Practitioners and Ors. v. Union of India and Ors. reported in (2007) 9 VST 126 (SC), has observed thus:
As stated above, every entry in the Lists has to be given a schematic interpretation. As stated above, Constitutional law is about concepts and principles. Some of these principles have evolved out of judicial decisions. The said test is also applicable to taxation laws. That is the reason why the entries in the lists have been divided into two groups, one dealing with general subjects and other dealing with taxation. The entries dealing with taxation are distinct vis-a-vis the general entries. It is for this reason that the doctrine of pith and substance has an important role to play while deciding the scope of each of the entries in the three Lists in the Seventh Schedule to the Constitution.
(emphasis supplied)
From the observations of the Apex Court mentioned supra, it is clear that the power to levy tax is treated as a distinct matter for the purpose of legislative competence. The two entries, viz., general and taxing entries are distinct and separate. Similar are the observations of the Apex Court in the case of Ram Charittar and Anr. v. State of Uttar Pradesh etc. reported in 2007 AIR SCW 5436.
10. Sri Soli Sorabjee, learned senior counsel appearing on behalf of the petitioners, by relying upon the judgment in the case of Central Bank of India v. Ravindra and Ors. reported in : AIR2001SC3095 , contended that ordinarily a word or expression used at several places in one enactment should be assigned the same meaning so as to avoid 'a head-on clash' between two meanings assigned to the same word or expression occurring at two places in the same enactment.
There cannot be any dispute with regard to the said preposition, inasmuch as it has been the consistent view of Supreme Court and various High Courts that when the Legislature used the same word or expression in different parts of the same Section or statute, there is a presumption that the word is used in the same sense throughout. In this matter also the words 'betting and gambling'' used in Entry 34 of List II and Entry 62 of List II carry the same meaning.
But Entry 62 of List II deals with tax on betting and gambling. Whereas, Entry 34 of List II is a general Entry relating to betting and gambling. Neither Entry 40 of List I nor Entry 34 of List II empowers the Parliament or the Legislature to enact tax laws on betting and gambling, whereas Entry 62 of List II is a special Entry empowering the State Legislature to enact tax laws on betting and gambling.
11. The entries in the Lists have to be read in accordance with the words employed and it would be wholly unjustified in forcing into them a meaning which they cannot reasonably bear. Thus, the subject of lotteries (including betting and gambling) given in Entry No. 40 of List I and the subject of taxes on betting and gambling in Entry 62 of List II have to be read separately as separate powers. The control and regulation of lotteries is the subject of Parliament under Entry 40 of List I, and therefore the power to tax under 62 of List II, which is a separate subject, cannot be said to have been given to Parliament. In this connection, it is relevant to note the observations made by the Apex Court while dealing with similar situation in the case of R.M.D.C. (Mysore) Private Limited v. State of Mysore reported in : [1962]3SCR230 , which read thus:.The pivot of the appellants' argument is that lire words 'control and regulation' and 'incidental and ancillary thereto' included power of taxation but this argument is not well founded.
xxx xxx xxx xxx xxxxxx xxx xxx xxx xxx...The entries in the Lists have to he read in accordance with the words employed and it will he wholly unjustified in forcing into them a meaning which they cannot reasonably bear. See Brophy v. Att. Gen. of Manitoba 1895 AC 202 at p.215. Similar observations were made by Lord Wright M.R. in James v. Commonwealth of Australia (No. 2) 1936 AC 578 at p, 613, and both these cases were quoted with approval in 1939 FCR 18 ), by Sulaiman, J. Thus the subject of 'betting and gambling' given in entry 34 of List II and the taxes on betting and gambling as given in entry 62 of List II have to be read separately as separate powers and therefore when control and regulation of prize competitions was surrendered to Parliament by the resolutions above quoted the power to tax under entry 62 of List II, which is a separate head, cannot be said to have been surrendered. See the observations of Das, C.J., in 1957 SCR 874: [(S) AIR 1957 SC 699], quoted a little later in this judgment.
xxx xxx xxx xxx xxxxxx xxx xxx xxx xxx...Therefore if the Mysore Legislature had the power, which in our opinion, it had and it had not surrendered its power to Parliament which, in our opinion, it had not then it cannot be said that the imposition of the tax is a piece of colourable legislation and is on that ground unconstitutional. It will be opposite to quote at this stage the observations of Das C.J. in 1957 SCR 874: [(S) AIR 1957 SC 699]:
For the reasons stated above, we have come to the conclusion that the impugned law is a law with respect to betting and gambling under Entry 34 and the impugned taxing section is a law with respect to tax on betting and gambling under Entry 62 and that it was within the legislative competence of the State legislature to have enacted it. There is sufficient territorial nexus to entitle the State legislature to collect the tax from the petitioners who carry on the prize competitions through the medium of a newspaper printed and published outside the State of Bombay.
Thus the Central Act is with respect to betting and gambling under Entry 34 of List II and the taxing sections of the Mysore Act are with respect to tax on betting and gambling under Entry 62. It is also instructive to note that Venkatarama Ayyar J., in 1957 SCR 930. [(S) AIR 1957 SC 628], in construing the language of the resolution was of the opinion that the use of the word 'control and regulation' was requisite in the case of gambling and as regards regulation of competitions involving skill mere regulation would have been sufficient.
In view of our finding that by passing the resolution the States did not surrender their power of taxation it cannot be said that Clause (2) of Article 252 of the Constitution was violated by the amendment of the Mysore Act; nor can it be said that in reality it was a piece of colourable legislation by an indirect attempt to amend the Central Act and a new method of control was devised by imposing a penalty under the name of tax. We have already held that the tax imposed under the Mysore Act was not by way of penalty but was the exercise of the power which the legislature possessed of imposing tax under Entry 62.
(emphasis supplied)
The Apex Court in the aforementioned matter, has held that the words 'control and regulation' and 'incidental and ancillary thereto' do not include the power of taxation. It is further held that the subject of betting and gambling given in Entry 34 of List II and the subject of tax on betting and gambling as given in Entry 62 of List II have to be read separately as separate powers. Thus even accepting the contention of the petitioners that Entry 34 of List II is rendered nugatory in respect of State run lotteries in the light of Entry 40 of List I the power to tax under Entry 62 of List II which is a separate and independent head, cannot be treated as a subject of the Parliament.
Thus, the Karnataka Legislature has the power to enact the Legislation in question and the same is traceable to Entry 62 of List II, which is independent of Entry 40 of List I.
12. There cannot be any dispute that an enactment which substantially falls within the powers expressly conferred by the Constitution upon the Legislature enacting it, it cannot be held to be invalid merely because it incidentally encroaches on the matters assigned to another Legislature. In other words, when a low is impugned as ultra vires, what has to be ascertained is the true character of the Legislation. If on examination, it is found that the Legislation is in substance one on a matter assigned to the Legislature, then it must be held to be valid in its entirety.
By the impugned enactment, the tax is levied for the purpose of generation of revenue and is not levied for the purpose of control or regulation of lotteries. The impugned Act which imposes tax on lotteries no way interferes with or regulates right of another State to carry on business of lottery. The petitioners also have not contended that they are subjected to any regulation or control. The impugned Act is applicable equally to all lotteries of the States including the lottery run by Department of Lotteries of Karnataka State. The Court construing and interpreting the Constitution or provisions of an enactment, has to ascertain the meaning and intention of legislature from the language used in the statute itself.
Merely because the lotteries are controlled and regulated by the Centre under Entry 40 of List I, the State is not deprived from its legitimate power to legislate within its own sphere by imposing tax on lotteries within the scope of entry 62 of List II. The ambit of Entry 40 of List I is limited and confined only to the regulation and control of the lotteries organised by the Government of India, and the Government of State. As there is no Entry in List I, which deals with tax on lotteries as found in Entry 62 of List II, the State is not prohibited to enact laws relating to taxation on lotteries. The impugned legislation does not fall within the purview of general entry relating to Regulation and Control of lotteries and therefore the contention of the petitioner is liable to be rejected.
The perusal of the Central Legislation Act makes it clear that the same is enacted to control and regulate the lotteries and the matters connected there with and incidental thereto. It does not have anything to do with aspects covered by Entry 62 in List II. Thus, there is no infirmity in the legislation under challenge.
13. As aforementioned, it is argued on behalf of the petitioners that tax is imposed on draws of lotteries and not on betting and gambling. Hence, it is relevant to note certain provisions of the impugned Act at this stage.
Section 2(4): 'Lottery' means a scheme, in whatever form and by whatever name called, for distribution of prizes by lot or chance to those persons participating in the chances of a prize by purchasing tickets organized by the Government of India or the Government of a State or an Union Territory or any country having bilateral agreement or treaty with the Government of India;
Section 2(5): 'Promoter' means the Government of India or a Government of State or an Union Territory or any country organizing, conducting or promoting a lottery and includes any person appointed for selling lottery tickets in the State on its behalf by such Government or Country where such Government or country is not directly selling lottery tickets in the State;
Section 2(6): 'Tax' means the tax levied and collected on lotteries under this Act;
xxxxx xxxxx xxxxxxxxxx xxxxx xxxxxSection 6: Levy of tax:- (1) Their, shall be levied and collected a tax on lotteries at the following rates, namely:
(a) one lakh and fifty thousand rupees for every bumper draw; and
(b) one lakh rupees in respect of any other draw.
(2) Tax levied under Sub-section (1) shall be paid by every promoter.
xxxxx xxxxx xxxxxxxxxx xxxxx xxxxxSection 8 - Registration of promoters and sellers: (1) Every promoter, and every person selling lottery tickets received from a promoter directly or otherwise, shall get himself registered under this Act in such manner on payment of such fee and within such period as may be prescribed.
Provided that a person ordinarily selling lottery tickets (other than lottery tickets of any computerized network lottery) in retail shall not be liable to get himself registered.
(2) The registration may be renewed from year to year on payment of the prescribed fee until it is cancelled.
(3) Nothing contained in this Section shall apply to the Government of India or Government of any State or Union Territory or any country except when it sells the lottery tickets itself.
Looking to the scheme of the Act, it is clear that draw is used only as a measure of tax. The draws themselves are not taxed. What is sought to be taxed is belting and gambling. The preamble of the impugned Act declares that the levy and collection of tax is on lotteries (gambling). The tax as defined under the impugned Legislation means that the tax levied and collected on lotteries. The Act does not levy tax on the draw or on the sale of tickets. The levy is on the betting and gambling which is offered within the State of Karnataka by organising the sale of tickets for participation in the lottery. The measure of levy of tax depends upon as to whether the lottery organised is relating to bumper draw or any other draw. It is also clear that Section 6 of the State Act merely prescribes the rates of tax. The activity that attracts tax is the conduct of lotteries, which includes various aspects, such as sale of tickets, advertisements, authorising agents, etc. It is the promoter who is liable to pay tax under Section 6(2) of State Act. Section 8 of the State Act provides for registration of the promoter or person selling lottery tickets. Therefore, levy of tax is not on draw of ticket, which of course takes place outside the State. The draw is only a measure of tax and tax is not imposed on the draw itself.
The judgment of the Bombay High Court in the case of Jiwankumar Sitaram Sondhi v. The Commissioner of Sales Tax Maharashtra State and Ors. is W.P.No. 129/2001, disposed of on 30.3.2001, relied upon by the petitioners may not be of help to them as the said matter arises under the provisions of the Bombay Sales Tax Act, 1959. The said Act imposed tax on sale of tickets. By insertion of Section 8D, the tax was shifted front sales to draws. The wording used in Section 8-D of Bombay Sales Tax Act, 1959 reads thus:
8-D(1) Notwithstanding anything contained in any other provisions of this Act, every dealer in lottery tickets in the State shall be liable to pay tax on sales thereof, only under this section, as provided in the table hereunder:
TABLE
Sl. No.
Type of Draw
Rate per draw
1.
Weekly Draw
Rupees Twenty thousand (Rs. 20,000)
2.
Fortnightly draw, including any draw the periodof which is more than a week but less than a week but less than a week butless than a fortnight.
Rupees Sixty thousand (Rs. 60,000)
3.
Monthly draw, including Monthly Bumper Draw andany draw the period of which is mote than a fortnight but less a month.
Rupees One Lakh (Rs. 1,00,000)
4.
Special Bumper Draw or Festival Bumper Drawincluding any other category and any draw the period of which is more than amonth.
Provided that, where a dealer has paid the tax under this Sub-section in respect of the sate of lottery tickets for a particular name and type of lottery ticket of a particular State and for a particular draw; no tax shall be payable in respect of the sale of such lottery tickets by any other dealer or any person in this State liable to pay tax under this Act.
(2) Notwithstanding anything contained in any other provisions of thus Act, tax payable under Sub-section (1) shall be paid ten days prior to the draw.
(emphasis supplied)
From the bare reading of the provisions of Section 8D of Bombay Sales Tax Act, 1959, it is clear that the wordings used therein are totally different from the words used in Section 6 of the impugned Legislation. Bombay Act discloses that the tax was earlier imposed on sale of tickets. By virtue of amendment, the same was shifted to draws. Thus, what was sought to be taxed was draws only. The Bombay High Court did not approve the incidence of shifting the levy from sale to draw. As aforementioned, the Section 8-D was inserted in the Bombay Sales Tax Act, whereas the Legislation in question is an independent Legislation traceable to Entry 62 of List II.
14. The contention of the petitioners that the nature of levy has extra territorial operation, also cannot be accepted.
They contended that the imposition of tax in Karnataka State will be hit by the principles of extra territoriality as the draws have taken place outside the State of Karnataka. There cannot he any dispute that if there is territorial nexus between the person sought to be charged and the State seeking to tax him, the taxing statute will have to be upheld. The doctrine of territorial nexus is well established and there is no dispute as to the principles. As has been held by the Apex Court in the case of State of Bombay v. R.M.D. Chamarbaugwala and Anr. 1957 SC 699, the sufficiency territorial connection involves consideration of two elements viz., a) the connection must be real and not illusory and b) the liability sought to be imposed must be pertinent to that connection.
In the maters on hand, the petitioners are promoting their lotteries within the State of Karnataka, inasmuch as they advertise inviting the people to participate in their lotteries; receive money towards right to participate by issuing lottery tickets; pay prizes for the winning persons having valid ticket in Karnataka. Betting and gambling takes place mainly in Karnataka, inasmuch as the persons by purchasing the tickets in Karnataka will resort to betting and gambling in Karnataka. If a person does not purchase the ticket, he will not be indulging himself in betting and gambling. Only if a person purchases the ticket, he involves himself in the act of betting and gambling. The petitioners have set up Collection Depots within the State of Karnataka to sell the tickets. They have appointed local agents. The petitioners advertise their lotteries through their local promoters or agents. The most important circumstance in these lotteries is alluring gullible people by inviting them to participate in the lotteries where very large prizes amounting to thousands and sometimes running into lakhs of rupees, may be won by making a paltry payment of some rupees for purchase of lottery ticket. The gamblers hold their soul in patience in great expectations that fortune may smile on them. Though draws take place outside the State, result is published and prizes are distributed in Karnataka. These developments reach a large number of people residing within the State of Karnataka. Thus, it is clear that the activities which attract tax and the activities which the petitioners and gamblers are ordinarily expected to undertake take place, mostly if not entirely, in the State of Karnataka. The tax is on the gambling and betting although collected from the promoters. All these, constitute sufficient territorial nexus which entitles the State of Karnataka to impose a tax on the gambling and betting that takes place within its boundaries and consequently the law cannot be struck down on the ground of extra territoriality. In this connection, a reference may be made to paragraph-24 of the judgment, reported in : [1957]1SCR874 , cited supra. The observations made therein are aptly applicable to this matter.
The Kerala High Court, while dealing with the question relating to validity of 'Kerala Tax on Paper Lotteries Act 2005', negatived similar contentions raised by the petitioners, in W.P.(c). No. 12189/2007, decided on 29.6.2007 and upheld the enactment. The provisions therein are almost similar to the provisions in the impugned enactment.
15. As mentioned above, the preamble of the impugned enactment clarifies that the Act is to provide for the levy and collection of tax on lotteries (gambling). Thus, what is taxed is not the sale of tickets or tickets themselves, but the aspect of betting and gambling. There is no doubt that the aspect of betting and gambling is inherent in conduct of the lotteries. It is not disputed by the petitioners that after promulgation of the Legislation in question, no sales tax is levied on sale of lottery tickets in Karnataka under the provisions of the Karnataka Sales Tax Act. A notification dated 6.12.2003 is also issued to the said effect.
In view of the above, this Court concludes that betting and gambling which is inherent in State Lotteries is not exempted from the levy of tax under Entry 62 of List II of the Seventh Schedule to the Constitution. Hence, impugned State Act is within the legislative competence of the State.
Accordingly, the writ petitions are liable to be dismissed and are dismissed.