SC rejects plea to reconsider judgement allowing K'taka, Kerala to impose tax on lotteries on NE states

Karnataka and Kerala High Courts had held they had no legislative competence to impose taxes on lotteries run by other North Eastern States

The Supreme Court has rejected a plea to reconsider its judgment which had declared that one state has got legislative competence to levy tax on lotteries run by other states in its territory while upholding the validity of the laws passed by Karnataka and Kerala to impose a tax on such lotteries.

A bench of Justices M R Shah and B V Nagarathna said, "There is no error apparent on the face of record warranting reconsideration of the order."

In its order on August 17, the court dismissed a review petition filed by Meghalaya and also the application for open court hearing.

As per the SC rules, the review petitions are considered inside the chamber of the judges on the basis of documents.

In its March 23, 2022 judgment, the same bench of judges had allowed an appeal filed by the States of Karnataka and Kerala against the decisions by their respective High Courts which had held they had no legislative competence to impose taxes on lotteries run by other North Eastern States like Nagaland, Arunachal Pradesh, Meghalaya, Sikkim and ordered them to refund the money.

"There are express provisions under the Acts of Karnataka and Kerala for registration of the agents or promoters of the governments of respective States for conducting the lottery schemes over there. This itself indicates sufficient territorial nexus between the respondents–States who are organising the lottery and the States of Karnataka and Kerala," the bench had said.

The top court had concluded that the High Courts were not right in holding that the respective State Legislatures had no legislative competence to impose tax on the lotteries conducted by other States in their States.

Both Karnataka and Kerala governments sought to rely upon the Karnataka Tax on Lotteries Act, 2004 and the Kerala Tax on Paper Lotteries, Act, 2005 to impose taxes.

The Karnataka government had then contended that the tax under question, was neither a tax on the sale of lottery tickets nor on lotteries as actionable claims. It is rather a tax on gambling traceable to Entry 62 of List II of the Constitution. Kerala adopted the submission by Karnataka.

The North Eastern States, on the other side, said both Karnataka and Kerala sought to impose a tax on the sale of lottery tickets which is not permissible and their laws sought to operate extra-territorially. They also said States must not be permitted to curtail the rights of North- Eastern States to conduct lotteries in view of their exigencies to generate revenue.

The top court, however, held the State Legislatures have the power to tax lotteries under Entry 62 of List II.

"This is because the taxation contemplated under the said Entry is on ‘betting and gambling’ activities which also includes lotteries, irrespective of the entity conducting the same. Hence, the legislations (by Karnataka and Kerala) are valid as the State Legislatures possessed legislative competence to enact such Acts," the bench had said.