TMI Blog2009 (8) TMI 1242X X X X Extracts X X X X X X X X Extracts X X X X ..... tteries. The Act does not levy tax on Draws or sale of tickets, the levy of tax is on betting and gambling which is offered within the State of Maharashtra by organising sale of tickets for participation in the lottery. The measure of levying of tax depends upon as to whether the lottery organised is relating to weekly draw, monthly draw or bumper draw. It is, thus, clear that levying of tax is not on the draw which takes outside the State. The draw is only a measure of tax and the tax is not imposed on the draw itself. Merely because the term Scheme is not defined, the provisions under Section 3 of the Act do not become vague. Whether the exercise of legislative power is colourable? - Held that:- Once we find that there is clear legislative competence in the State legislature to legislate, there is no exercise of power being colorable merely because earlier a particular type of tax was levied which was found to be not legal. So far as the submission that the State Act has been enacted to make the business of selling of lottery tickets of the lotteries organised by the other States unviable is concerned, we find from the petition that there is no material placed in support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax on lottery tickets. The third submission is that the State Act seeks to levy tax on lottery schemes, tax is collected in advance in respect of each draw in the lottery scheme at the rate specified in Section 3 of the State Act. It is submitted that lottery scheme of all other State organizing and conducting lotteries save and except that of Maharashtra are formulated outside the State of Maharashtra and therefore, the Law has extra territorial application. The fourth submission is that the State Act levies tax on lottery schemes but the term lottery scheme is not defined anywhere and therefore, it is violative of guarantee under Article 14 of the Constitution of India. It was also contended that the State Act has been enacted to impose tax on sale of lottery tickets conducted by other States in State of Maharashtra so as to make selling of lottery tickets by the other States uneconomical, unviable and thereby creating monopoly in the lottery tickets of the lotteries conducted by the State of Maharashtra. 4. Elaborating the first submission, the learned Counsel appearing for petitioners submitted that the legislature of State of Maharashtra has no legislative competence to en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lect tax on lottery schemes, the State Act seeks to tax events which have occurred outside the State and hence, the State Act is dealing with the subject which is not within its territorial jurisdiction. 7. Elaborating the fourth submission, it was contended that though tax is imposed in relation to the schemes, the term Scheme is not defined in the Act. Thus, the tax is being levied with reference to the concept which is extremely vague and therefore, levying of tax in such a situation violates the guarantee of Article 14 of the Constitution. It was also submitted that extremely large amount has been collected as tax under the Act with a view to make it uneconomical to sell tickets of lotteries conducted by other States in the State of Maharashtra with a view to create monopoly in relation to the lottery tickets of the lotteries conducted by State of Maharashtra. Thus, according to the petitioners, it is colourable exercise of legislative power. 8. On behalf of the Respondent-State of Maharashtra, on the other hand, it was contended that the State Act has been enacted under Entry 62 of List II of the Seventh Schedule of the Constitution of India relying on the Judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cified in Column 2 of the Table. Perusal of Column 2 of the table shows that the Act contemplates four kinds of lottery schemes viz. (i) Weekly lottery scheme, (ii) fortnightly lottery scheme, (iii) monthly lottery scheme and (iv) bumper lottery scheme. Though the term scheme has not been defined in the Act, the term lottery has been defined by Section 2(d) of the Act which reads as under:- 2.In this Act, unless the context otherwise requires- (d) lottery means a scheme, in whatever form and by whatever name called, for distribution of prizes by lot or chances to those persons participating in the chances of a prize, by purchasing tickets, conducted as per the provisions of the Lotteries (Regulation) Act,1998. Perusal of the above definition shows that Lottery means a scheme for distribution of prizes by lot or by chance. It is, thus, clear that lottery is nothing but a scheme for distribution of prizes by lot or chance. It is clear from the provision of sub-section (2) of Section 3 of the Act that the tax levied under sub-section (1) of Section 3 of the Act has to be paid by the Promoter. The term Promoter is defined under sub-section (f) of Section 2 of the Act, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arliament 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. The observations of the Hon ble Supreme Court in paragraphs 74, 75 and 76 are relevant, they read as under:- 74. It is necessary to examine the scheme underlying the Seventh Schedule of the Constitution. We are relieved of the need of embarking upon any maiden voyage in this direction in view of the availability of a Constitution Bench decision in M.P.V.Sundararamier Co. Vs. State of A.P., Venkatarama Aiyar, J., speaking for the Constitution Bench, traced the history of legislations preceding the Constitution, analysed the scheme underlying the division of legislative powers between the Centre and the States and then succinctly summed up the quintessence of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular subject of the legislation falls within the ambit of the one or the other. Where there is a clear and irreconcilable conflict of jurisdiction between the Centre and a Provincial Legislature it is the law of the Centre that must prevail. 75. Referring to M.P.V.Sundararamier Co.Sabyasachi Mukharji, J . (as His Lordship then was) speaking for six out of the seven Judges constituting the Bench in Synthetics and Chemicals Ltd. V. State of U.P. held that under the constitutional scheme of division of powers in the Seventh Schedule, there are separate entries pertaining to taxation and other laws. A tax cannot be levied under a general entry. 76. The abovesaid principles continue to hold the field and have been followed in cases after cases. General Power of regulation and control does not include power of taxation. Applying the principles laid down by the Supreme Court in the above said paragraphs to the present case, it can safely be said that because of Entry 40 of List I of the Seventh Schedule, the State legislature does not have power to legislate in relation to the lotteries organized by the Government of India or Government of State under Entry 34 of Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o impose a tax under our constitutional scheme. According to Seervai (Constitutional Law of India, 4th/Silver Jubilee Edn. Vol.3, para22.191): 22.191. Although in Dhillon case conflicting view were expressed about the nature of the residuary power, the nature of that power was stated authoritatively in Kesavananda case. Earlier, in Golak Nath case, Subba Rao, C.J. (for himself, Shah, Sikri, Shelat and Vaidyalingam, JJ.) had held that Article 368 only provided the procedure for the amendment of the Constitution, but that the power to amend the Constitution was to be found in the residuary power conferred on Parliament by Articles 245 and 246(1) read with Entry 97 List I and by Article 248. Seven out of the nine Judges who overruled Golak Nath case held, inter alia, that the power to amend the Constitution could not be located in the residuary powers of Parliament. Hegde and Mukherjea, JJ. held that -- It is obvious that these lists have been very carefully prepared. They are by and large exhaustive. Entry 97 in List I was included to meet some unexpected and unforeseen contingencies. It is difficult to believe that our Constitution-makers who were keenly conscious of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h as to include therein the power to tax by implication or by necessary inference. States Cooley in Taxation (Vol.1, 4th Edn): There is no such thing as taxation by implication. The burden is always upon the taxing authority to point to the act of assembly which authorizes the imposition of the tax claimed. (para 122 at p.278). 105. Justice G.P. Singh in Principles of Statutory Interpretation (Eighth Edition, 2001) while dealing with general principles of strict construction of taxation statutes states :__ A taxing statute is to be strictly construed. The well established rule in the familiar words of Lord Wensleydale, reaffirmed by Lord Halsbury and Lord Simonds, means : The subject is not to be taxed without clear words for that purpose; and also that every Act of Parliament must be read according to the natural construction of its words . In a classic passage Lord Cairns stated the principle thus : If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown seeking to recover the tax, cannot bring the subject within the lette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitution (See: Seervai H.M.: Constitutional Law of India, 4th/Silver Jubilee Edn, Vol.3, para 22.20) (emphasis supplied). 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. As observed above, before us it is an admitted position that the lottery is included within the ambit of meaning of the term betting , therefore, had there been no Entry 40 in List I of the Seventh Schedule, the State legislature wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Kesoram Industries Ltd. And others referred to above the Parliament cannot be said to have power to impose tax in relation to lotteries under residuary Entry 97 of List I of the Seventh Schedule of the Constitution. Thus, we find that there is absolutely no substance in the contention that the State legislature did not have competence to legislate the State Act under Entry 62 of List II of the Seventh Schedule of the Constitution. 11. Now so far as the submission that the State Act in fact levies tax on sale of lottery tickets is concerned, in our opinion, this submission also does not have any substance. Looking to the scheme of the Act, it is clear that Draw is used only as a measure of tax. What is said to be taxed is betting and gambling. From the preamble of the State Act it is clear that levy and collection of tax is on the lotteries (betting and gambling). The tax , as defined under the State legislation, means the tax levied and collected on lotteries. The Act does not levy tax on Draws or sale of tickets, the levy of tax is on betting and gambling which is offered within the State of Maharashtra by organising sale of tickets for participation in the lottery. The mea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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