Holding

State legislatures have the constitutional competence to levy tax on lotteries under Entry 62 of List II, as lotteries are a form of betting and gambling, and Entry 40 of List I only confers regulatory power, not a tax bar.

Summary

The Karnataka and Kerala legislatures enacted the Karnataka Tax on Lotteries Act, 2004 and the Kerala Tax on Paper Lotteries Act, 2005 to levy taxes on lottery schemes, including those organised by the Government of India or other states. The High Courts of Karnataka and Kerala held that the statutes were unconstitutional for lacking legislative competence and ordered refunds to the respondent states that organised the lotteries. The appeals before the Supreme Court raised the question whether the power to tax lotteries, which are a form of gambling, falls within State List entry 62 or is barred by Union List entry 40. The Court held that lotteries are a species of betting and gambling, covered by entry 34 of List II, and that entry 62 expressly empowers states to tax such activities; entry 40 merely provides a regulatory framework and does not preclude taxation. Consequently, the impugned statutes were upheld, the High Court judgments set aside, and no refund was ordered.

Issues considered

Whether lotteries organised by the Government of India or a State, which are placed in Entry 40 of List I, are excluded from the taxation power under Entry 62 of List II.
Whether the subject of ‘betting and gambling’ in Entry 34 of List II includes lotteries and thus gives states the power to tax them.
Whether the Karnataka Tax on Lotteries Act, 2004 and the Kerala Tax on Paper Lotteries Act, 2005 are within the legislative competence of the respective State legislatures.
Whether the High Courts erred in holding the statutes ultra vires and directing refunds.

Legislation cited

Subjects

constitutional lawlegislative competencetaxationlotteriesEntry 40 List IEntry 34 List IIEntry 62 List IIfederalismpith and substanceextra‑territorial operationgambling

Judgment

516 [2022]REPORTS
SUPREME COURT 18 S.C.R. 516 [2022] 18 S.C.R.

A STATE OF KARNATAKA & ANR. ETC.
v.
STATE OF MEGHALAYA & ANR. ETC.
(Civil Appeal Nos.10466-10476 of 2011)
B MARCH 23, 2022
[M. R. SHAH AND B. V. NAGARATHNA, JJ.]
Constitution of India, 1950 – Article 246 – Seventh Schedule
– Entry 40 of List 1 – Entry 34 of List II – Entry 62 of List II –
Karnataka Tax on Lotteries Act, 2004 – Kerala Tax on Paper
C
Lotteries Act, 2005 - Division Bench of the High Court of Karnataka
vide impugned judgments dated 27th December, 2010 and 7th March,
2011 held that the Karnataka Legislature had no legislative
competence to pass the Karnataka Tax on Lotteries Act, 2004 - The
Division Bench of the High Court of Kerala by the impugned
D judgments dated 30th April, 2020, 9th August, 2021 and 10th
August, 2021, held that the Kerala legislature had no legislative
competence to enact the Kerala Tax on Paper Lotteries, Act, 2005
and declared it as unconstitutional and invalid – The respondents
herein are the States of Nagaland, Arunachal Pradesh, Meghalaya,
Sikkim, and others who are the organisers of the lotteries as well as
E
promoters, inter alia, in the States of Karnataka and Kerala – As per
the decision of the High Courts, the States of Karnataka and Kerala
were directed to refund the amounts deposited by the Respondents
States who had organised the lottery schemes - The present set of
appeals have been preferred by the States of Karnataka, Kerala
F and others being aggrieved by the judgments passed by the Division
Benches of the High Courts of the respective States – Held:The
subject ‘betting and gambling’ in Entry 34 of List II is a State subject–
From the judgments of the Supreme Court, it is clear that ‘lotteries’
is a species of gambling activity and hence lotteries is within the
ambit of ‘betting and gambling’ as appearing in Entry 34 List II –
G
The expression ‘betting and gambling’ is thus a genus it includes
several types or species of activities such as horse racing, wheeling
and other local variations/forms of ‘betting and gambling’ activity
– The subject ‘lotteries organised by the Government of India or
the Government of a State’ in Entry 40 of List I is a Union subject –
H It is only lotteries organised by the Government of India or the
516
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 517
MEGHALAYA & ANR. ETC.

Government of State in terms of Entry 40 of List I which are excluded A
from Entry 34 of List II –‘betting and gambling’ is a State subject
except to the extent of it being denuded of its powers insofar as
Entry 40 of List I is concerned –Entry 62 of List II is a specific
taxation Entry on ‘luxuries, including taxes on entertainments,
amusements, betting and gambling’ – The power to tax is on all B
activities which are in the nature of ‘betting and gambling,’ including
lotteries – Since, there is no dispute that lotteries, irrespective of
whether it is conducted or it is organised by the Government of
India or the Government of State or is authorized by the State or is
conducted by an agency or instrumentality of State Government or
a Central Government or any private player, is ‘betting and C
gambling’, 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 impugned are valid as the Karnataka and D
Kerala State Legislatures possessed legislative competence to enact
such Acts –The scope and ambit of lotteries organised by Government
of India or Government of State under Entry 40 of List I is only in
the realm of regulation of such lotteries – The said Entry does not
take within its contours the power to impose taxation on lotteries
E
conducted by the Government of India or the Government of State
– lottery schemes by the Government of other States are organised/
conducted in the State of Karnataka or Kerala and there are express
provisions under the impugned Acts for registration of the agents
or promoters of the Governments of respective States for conducting
the lottery schemes in the State of Karnataka and the State of Kerala F
– This itself indicates sufficient territorial nexus between the
respondents- States who are organising the lottery and the States of
Karnataka and Kerala – Division Benches of the High Courts of
Kerala and Karnataka were not right in holding that the respective
State Legislatures had no legislative competence to impose tax on G
the lotteries conducted by other States in their State (in the State of
Karnataka and Kerala respectively).
Allowing the appeals, the Court
HELD: 1. Whether, while interpreting Entry 40 of List I
alongside Entries 34 and 62 of List II, the power to tax lotteries H
518 SUPREME COURT REPORTS [2022] 18 S.C.R.

A organised by the Government of India or the Government of a
State is also taken away from Entry 62 of List II and is to be read
within the ambit of Entry 40 of List I and therefore, the States of
Karnataka and Kerala in the instant cases had no legislative
competence to enact the impugned Acts. Only lotteries organised
by the Government of India or the Government of a State is carved
B
out of the subject, ‘betting and gambling’ in Entry 34 of List II
and is placed in Entry 40 of List I and Entry 62 of List II, inter
alia, speaks of tax on ‘betting and gambling’. By that, this Court
does not think by that the State Legislatures have been denuded
of their power to levy tax under Entry 62 of List II on lotteries
C organised by Government of India or Government of a State. The
court say so for the following reasons: (a) Entry 62 of List II is a
specific taxation entry on luxuries, including taxes on
entertainments, amusements, betting and gambling. The
expression ‘betting and gambling’ would have to be read ejusdem
generis with entertainments and amusements. The tax is thus on
D
the activity of ‘betting and gambling’ as it is on an activity. (b)
The expression ‘betting and gambling’ is also found in Entry 34
of List II. The activity of ‘betting and gambling’ includes, inter
alia, lotteries. Lotteries can be conducted by the Government of
India or the Government of States or authorised by a State or be
E conducted by private entities in a State. Thus, a lottery conducted
by any of the above entities, Government or private is an activity
falling within the nomenclature of ‘betting and gambling’ which is
the subject in Entry 34 List II. But what has been carved out of
Entry 34 of List II is only lotteries conducted by the Government
of India or the Government of any State. Therefore, all other types
F
of lotteries continue to remain within the scope and ambit of
‘betting and gambling’ as an activity in Entry 34 of List II. (c)
Hence under Entry 62 of List II, the specific power to tax an
activity which is ‘betting and gambling’ is reserved with the State
legislature and cannot be read within the scope and ambit of Entry
G 40 of List I which is inherently restricted in its scope. This Court
says so for the following reasons:
(i) First, when a specific entry regarding taxation is provided
in List II empowering the State Legislature to levy tax on a
subject, namely, ‘betting and gambling’ amongst other similar
H activities, the same cannot be read by implication in an entry of
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 519
MEGHALAYA & ANR. ETC.

List I namely Entry 40 of List I. This is because a taxation entry A
is separate and distinct from an entry dealing on a particular
subject. This principle has been adequately explained by this Court
in several judgments such as M.P.V. Sundararamier and followed
in Hoechst Pharmaceuticals, Kesoram discussed above. (ii)
Second, a taxation entry or legislative power to levy a tax on
B
‘betting and gambling’ in the instant case, cannot be 110 split
between the Parliament and the State Legislature when the said
power is expressly enumerated in Entry 62 of List II. This is the
constitutional scheme under the three Lists. This is as per the
constitutional scheme. This is also evident on a perusal of the
Entries of List III (Concurrent List) which empowers both the C
Union as well as State Legislature to enact laws on subjects
mentioned therein and the powers to levy a tax is conspicuous
by its absence. (iii) Third, the object and purpose of Entry 62 of
List II is to tax the activity of ‘betting and gambling’, whether it
is conducted by a private entity or a State authorised entity or an
instrumentality or agency or for that matter by the Government D
of India or the Government of any State. This is because
irrespective of who organises a lottery scheme, it is ultimately a
species of gambling. It is nobody’s case that participation in a
lottery scheme is not gambling. The said activity i.e. lottery
scheme can be conducted throughout the territory of India E
provided a particular State grants permission to organise and
conduct the said activity in that State. Thus, organisation and
conducting of lottery can be a pan India activity of gambling and
when a particular State permits a lottery scheme conducted by
the Government of India or the Government of any State in that
State, a tax is leviable on the same, which is a tax on gambling. F
Thus Entry 62 of List II empowers the State Legislatures to
impose tax on ‘gambling’ irrespective of who or which entity is
conducting it including the Government of India or Government
of any State. (iv) Fourth, ‘betting and gambling’ is a subject
enumerated in Entry 34 of List II and is a State subject. Therefore, G
the permission for conducting any betting and gambling activities
within a State, including conduct of a lottery scheme under the
said Entry, gives competence to the State Legislatures to also
tax the said activity irrespective of who conducts it. This is
because what is being taxed is a gambling activity which is
squarely covered under Entry 34 of List II and not on lottery per H
520 SUPREME COURT REPORTS [2022] 18 S.C.R.

A se conducted by Government of India or Government of a State.
Therefore, the State Legislature has the competence to tax lottery
scheme which is gambling being conducted not only by the
Government of India or the Government of any State or by any
other agency or instrumentality of a particular State but also by a
private entity within the State as gambling. (v) Fifth, the contention
B
of respondents-States that the subject, ‘lotteries organised by
the Government of India or the Government of a State’ being
placed in Entry 40 of List I would also empower only the
Parliament to impose a tax on the same by way of implication
under the said Entry itself is not a correct interpretation of the
C Entries in the Lists. (vi) Sixth, Entry 97 of List I can be invoked
only when any matter is not enumerated in List II or List III
including any tax not mentioned in the said Lists. There is no
specific Entry for levy of tax on betting and gambling in List I. It
is only in Entry 62 of List II. Thus, Entry 62 of List II gives
legislative competence to a State Legislature to levy a tax on
D ‘betting and gambling’. This would also include a tax on
organisation and conduct of lotteries, whether by the Central
Government or Government of any State or authorised by a State
or by any private entity within the State when permission has
been given by a State Government to conduct such an activity of
E gambling. Thus, Entries 34 and 62 of List II which deal with
‘betting and gambling’ have been interpreted identically and the
said expression is given an identical meaning. Thus, lotteries
organised by the Government of India or the Government of a
State is only excluded from Entry 34 of List II which deals with
‘betting and gambling’ only, for the purpose of regulation by the
F Parliament and not for levy of tax. (vii) Seventh, when the State
Government has the legislative competence to levy tax on ‘betting
and gambling’ as a specific taxation entry is provided to levy tax
on the said activity under Entry 62 of List II the said entry must
be interpreted comprehensively and not in a restricted or narrow
G manner by excluding taxation on gambling on lottery conducted
by Government of India or any Government of a State from the
purview of the said Entry and read into Entry 40 of List I by
implication. (viii)Eighth, such a power to levy taxes cannot be
read into Entry 40 of List I by implication or into Entry 97 of List
I as a residuary power. Such interpretation, if endorsed, it would
H do violence to the manner of interpretation of Entries in the Lists
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 521
MEGHALAYA & ANR. ETC.

and prove to be contrary to the Articles of the Constitution and A
judgments of this Court cited above. (ix) Ninth, if the State
Government does not permit a particular species of betting and
gambling activity in the State including the organisation and
conduct of lotteries by the Government of India or the
Government of any State then obviously it cannot tax such an
B
activity. But if it permits any species of betting and gambling
activity within the State in terms of Entry 34 of List II then the
State has legislative competence to tax such an activity of betting
and gambling including lotteries irrespective of who conducts it
as per Entry 64 of List II. (x) Tenth, Entry 40 of List I is meant
only for the regulation of lotteries organised by the Government C
of India or the Government of a State. The said Entry cannot be
expanded to cover the power to levy taxes on lotteries by the
Parliament when as such a power is envisaged in Entry 62 of List
II. The Parliament, therefore, cannot tax a gambling activity,
namely, organisation of lotteries conducted by the Government
D
of India or for Government of a State on the strength of Entry 40
of List I. It may however regulate the said activity. Any impost
strictly for the purpose of regulation of lotteries is permissible
so long as it is not a tax on gambling which is only within the
ambit of only Entry 62 of List II. In other words, in order to have
uniformity in the regulation of lotteries organised by the E
Government of India or the Government of a State throughout
the territory of India, Entry 40 is found in List I and the Parliament
is vested with the power to regulate the same. (xi) Eleventh, any
betting and gambling activity conducted by a private entity in a
State or is authorized by a State Government can be regulated
F
only by the State Legislature. This is because of Entry 34 in of
List II which deals with betting and gambling which also includes
lotteries and the same does not fall within Entry 40 of List I. (xii)
Twelfth, when a Government of a State permits organisation or
conduct of lotteries either by the Government of India or the
Government of any State thereby enabling participation in the G
scheme of lottery by those persons who have purchased the lottery
tickets in the State, the territorial nexus is established as lottery,
being species of betting and gambling, is permitted to be
conducted within the State which has sought to impose taxation
on the conduct of lotteries. Such nexus persists even when the
H
522 SUPREME COURT REPORTS [2022] 18 S.C.R.

A lotteries promoted within the taxing State are conducted by the
Government of India or the Government of any other State.
Therefore, the court we do not find any merit in the contention
regarding the impugned laws being invalid on account of extra
territorial operation. [Para 118][595-G-H; 596-A-H; 597-A-H;
598-A-H; 599-A-H; 600-A-H; 601-A]
B
2. In conclusion this Court holds that the tax sought to be
imposed by the State Legislatures of Karnataka and Kerala by
way of the impugned Acts, is traceable to the power conferred on
the State Legislatures under Entry 62 of List II. The said entry
contemplates imposition of taxes, inter alia, on the entire genus
C of ‘betting and gambling’. having concluded that ‘lottery’ of every
kind, whether organized by the Government of India or the
Government of a State or by a private entity is included within
the genus of ‘gambling’, we find no reason to hold that State
organized lotteries are excluded from the ambit of ‘betting and
D gambling’ as appearing in Entry 62 of List II. We are not inclined
to accept the view that ‘lotteries organized by the Government
of India or the Government of a State’ are to be excluded from
the expression ‘betting and gambling’ as appearing in Entry 62
of List II which deals with taxes on gambling activities, simply
because such category of lotteries is excluded from the regulatory
E field relatable to betting and gambling under Entry 34 of List II
and included in Entry 40 of List I. Exclusion of a legislative field
from a term appearing in a general Entry, does not necessarily
mean that such field ought to be excluded from the taxation Entry.
This means that the term ‘betting and gambling’ in Entry 62 of
F List II is being construed in the same way as in Entry 34 of List
II. The expression is accorded the same meaning and
interpretation in both the Entries, i.e., that gambling includes
lotteries. However, ‘lotteries organized by the Government of
India or the Government of a State’ have been carved out of Entry
34 of List II and been placed with the Union. Entry 34 of List II is
G denuded to this limited extent. Such transposition of power does
not mean that the term ‘betting and gambling’ has a different
meaning in each of the aforesaid Entries. It only implies that for
regulatory purposes, having regard to the need for uniform
legislation throughout the territory of India, the Parliament has
H
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 523
MEGHALAYA & ANR. ETC.

been conferred with exclusive jurisdiction to regulate the conduct A
of lotteries, throughout the territory of India. [Para 119][601-B-
G]
3. In the instant case, the tax imposed is on the ‘gambling’
nature of lotteries, which field is covered in its entirety under
Entry 62 of List II and the power to impose tax under this Entry B
extends in relation to lottery of every kind, with no distinction as
to the entity organizing the same. [Para 120][601-G-H; 602-A]
4. Thus, in the context of lotteries, the organisation and
conduct of a lottery scheme being a pan India activity, when any
State Government permits the Government of India or any other C
State Government to organise the lottery scheme in that State,
Entry 62 of List II would enable the Legislature of that State to
levy taxes on the same. [Para 121][602-B]
5. Hence, in our view, the Legislatures of the State of
Karnataka and Kerala were fully competent to enact the impugned D
Acts and levy taxes on the activity of ‘betting and gambling’ being
organised and conducted in the said respective States, including
lotteries conducted by the Government of India or the
Government of any State. [Para 122][602-C]
6. The Division Benches of the High Courts was not right E
in holding that the State Legislatures had no power to levy tax on
lotteries conducted by the Government of India or the
Government of any State or Union territory in the State of
Karnataka as such a power could be read in Entry 40 or Entry 97
of List I and only the Parliament could levy such a tax. Since we
have held that the States of Karnataka and Kerala had the F
legislative competence to enact the impugned Acts, the question
of refund of tax collected under the same does not arise. [Para
123][602-D-E]
7. In view of the aforesaid discussion, this Court comes to
the following summary of conclusions: - (i) That the subject G
‘betting and gambling’ in Entry 34 of List II is a State subject. (ii)
From the judgments of this Court, it is now clear that ‘lotteries’

H
524 SUPREME COURT REPORTS [2022] 18 S.C.R.

A is a species of gambling activity and hence lotteries is within the
ambit of ‘betting and gambling’ as appearing in Entry 34 List II.
(iii) The expression ‘betting and gambling’ is relatable to an
activity which is in the nature of ‘betting and gambling’. Thus, all
kinds and types of ‘betting and gambling’ fall within the subject
of Entry 34 of List II. The expression ‘betting and gambling’ is
B
thus a genus it includes several types or species of activities
such as horse racing, wheeling and other local variations/forms
of ‘betting and gambling’ activity. The subject ‘lotteries organised
by the Government of India or the Government of a State’ in
Entry 40 of List I is a Union subject. It is only lotteries organised
C by the Government of India or the Government of State in terms
of Entry 40 of List I which are excluded from Entry 34 of List II.
In other words, if lotteries are conducted by private parties or by
instrumentalities or agencies authorized, by Government of India
or the Government of State, it would come within the scope and
ambit of Entry 34 of List II. (iv) Thus, the State legislatures are
D denuded of their powers under Entry 34 of List II only to the
extent of lotteries organised by the Government of India or the
Government of a State, in terms of Entry 40 of List I. In other
words, except what is excluded in terms of Entry 40 of List I, all
other activities which are in the nature of ‘betting and gambling’
E would come within the scope and ambit of Entry 34 of List II.
Thus, ‘betting and gambling’ is a State subject except to the extent
of it being denuded of its powers insofar as Entry 40 of List I is
concerned. (v) Entry 62 of List II is a specific taxation Entry on
‘luxuries, including taxes on entertainments, amusements,
betting and gambling’. The power to tax is on all activities which
F are in the nature of ‘betting and gambling,’ including lotteries.
Since, there is no dispute that lotteries, irrespective of whether
it is conducted or it is organised by the Government of India or
the Government of State or is authorized by the State or is
conducted by an agency or instrumentality of State Government
G or a Central Government or any private player, is ‘betting and
gambling’, 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 impugned are valid
H as the Karnataka and Kerala State Legislatures possessed
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 525
MEGHALAYA & ANR. ETC.

legislative competence to enact such Acts. (vi) Thus, the scope A
and ambit of lotteries organised by Government of India or
Government of State under Entry 40 of List I is only in the realm
of regulation of such lotteries. The said Entry does not take within
its contours the power to impose taxation on lotteries conducted
by the Government of India or the Government of State. (vii) We
B
also hold that lottery schemes by the Government of other States
are organised/conducted in the State of Karnataka or Kerala and
there are express provisions under the impugned Acts for
registration of the agents or promoters of the Governments of
respective States for conducting the lottery schemes in the State
of Karnataka and the State of Kerala. This itself indicates C
sufficient territorial nexus between the respondents– States who
are organising the lottery and the States of Karnataka and Kerala.
(viii) In view of the aforesaid conclusions, the court find that
Division Benches of the High Courts of Kerala and Karnataka
were not right in holding that the respective State Legislatures
D
had no legislative competence to impose tax on the lotteries
conducted by other States in their State (in the State of Karnataka
and Kerala respectively). [Para 124][602-E-H; 603-A-H; 604-A-
E]
Skill Lotto Solutions Pvt. Ltd. vs. Union of India (2020)
SCC Online SC 990; Govind Saran Ganga Saran vs. E
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State of West Bengal vs. Kesoram Industries Limited
(2004) 10 SCC 201 : [2004] 1 SCR 564; Synthetics F
and Chemicals Ltd. vs. State of Uttar Pradesh (1990) 1
SCC 109 : [1989] 1 Suppl. SCR 623; JalkalVibhag
Nagar Nigam vs. Pradeshiya Industrial and Investment
Corporation (2021) SCC Online SC 960; Mafatlal
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[1996] 10 Suppl. SCR 585; Somaiya Organics (India) G
Ltd. vs. State of Uttar Pradesh (2001) 5 SCC 519 :
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AIR 1967 SC 1643 : [1967] SCR 762; India Cement
Ltd. vs. State of Tamil Nadu (1990) 1 SCC 12 : [1989] 1
Suppl. SCR 692; Jindal Stainless Ltd. vs. State of H
526 SUPREME COURT REPORTS [2022] 18 S.C.R.

A Haryana (2017) 12 SCC 1 : [2016] 10 SCR 1;
Prof.Yashpal vs. State of Chhattisgarh (2005) 5 SCC
420 : [2005] 2 SCR 23; Union of India vs. Harbhajan
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Sunrise Associates vs. Government of Delhi (2006) 5
SCC 603 : [2006] 1 Suppl. SCR 421; Federation of
B
Hotel and Restaurant Association of India vs. Union of
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Municipal Council vs. State of Punjab (1997) 7 SCC
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C State of Uttar Pradesh vs. Vam Organic Chemicals
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: [1961] SCR 809; Ujagar Prints vs. Union of India
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E Gas Company vs. State of West Bengal AIR 1962 SC
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H. Anraj vs. State of Maharashtra, (1984) 2 SCC 292 :
G [1984] 2 SCR 440; H. Anraj vs. Government of Tamil
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SCC 217; B.R. Enterprises vs. State of Uttar Pradesh
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H
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 527
MEGHALAYA & ANR. ETC.

Sunrise Associates vs. Govt. of NCT of Delhi (2006) 5 A
SCC 603 : [2006] 1 Suppl. SCR 421; – relied on.
Reader’s Digest Association ltd. v. Williams, (1976) 1
W.L.R. 1109 – referred to.
Black’s Law Dictionary, 104; Advanced Law Lexicon, P.
RamanathaAiyar (6th Edition), 104; Words and Phrases B
[Permanent Edition] Vol. 25-A at page 439, 104;
Advanced Law Lexicon, P. RamanathaAiyar (1997
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[Oxford University Press, 11 Edn., 2004], 104; Webster’s
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on.
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[1958] SCR 1422 referred to Para 10
D
[2004] 1 SCR 564 referred to Para 10
[1989] 1 Suppl. SCR 623 referred to Para 10
[1996] 10 Suppl. SCR 585 referred to Para 15
[2001] 3 SCR 33 referred to Para 15
E
[1967] SCR 762 referred to Para 15
[1989] 1 Suppl. SCR 692 referred to Para 15
[2016] 10 SCR 1 referred to Para 20
[2005] 2 SCR 23 referred to Para 21
F
[1972] 2 SCR 33 referred to Para 22
[2006] 1 Suppl. SCR 421 referred to Para 23
[1989] 2 SCR 918 referred to Para 32
[1996] 10 Suppl. SCR 472 referred to Para 37
G
[1977] 1 SCR 1072 referred to Para 48
[2003] 4 Suppl. SCR 957 referred to Para 50
[1964] SCR 461 referred to Para 81
[1951] SCR 682 relied on Para 57
H
528 SUPREME COURT REPORTS [2022] 18 S.C.R.

A [1961] SCR 809 relied on Para 58
[1988] 3 Suppl. SCR 770 relied on Para 58
[1962] Suppl. SCR 1 relied on Para 62
[1957] SCR 930 relied on Para 63
B [1964] SCR 787 relied on Para 66
[1964] SCR 975 relied on Para 67
[1983] 3 SCR 130 relied on Para 70
[1961] SCR 537 relied on Para 81
C
[1957] SCR 874 relied on Para 108
[1984] 2 SCR 440 relied on Para 108
[1985] 3 Suppl. SCR 342 relied on Para 108
[1999] 2 SCR 1111 relied on Para 108
D
[1962] SCR 230 relied on Para 108
[2006] 1 Suppl. SCR 421 relied on Para 108
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 10466-
10476 of 2011.
E
From the Judgment and Order dated 27.12.2010 of the High Court
of Karnataka at Bangalore in Writ Appeal Nos. 2251, 2131, 2132, 2220,
2246, 2221, 2225, 2248 of 2007 and 749, 750, 895 of 2008 (GM-LOTT).
With
F Civil Appeal Nos. 101-102 of 2012, Civil Appeal No. 911 of 2021,
Civil Appeal Nos. 869-870 and 871 of 2022.
N. Venkataraman, ASG, Nikhil Goel, AAG, Pallav Shishodia, Sr.
Adv., Shubhranshu Padhi, Ashish Yadav, Rakshit Jain, Vishal Banshal,
C. K. Sasi, Abdullah Naseeh, Ms. Meena K. P., Advs. for the Appellants.
G Amit Kumar, Vivek Kohli, Advocate Generals, Arvind Datar, S.
K. Bagaria, C. A. Sundaram, Sr. Advs., Avijit Mani Tripathi, Aditya
Shankar Pandey, Ms. Vishakha Kumar, Rahul Unnikrishnan, Shaurya
Sahay, Shaffi Mather, Siddhartha Chowdhury, Sameer Abhyankar, Ms.
Yeshi Rinchhen, Kumar Ajit Singh, Abhinav Mishra, Ms. Nishi Sangatani,
Ms. Rohini Musa, Abhishek Gupta, Zaffar Inayat, Bhargava V. Desai,
H
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 529
MEGHALAYA & ANR. ETC.

Ajit Kumar, Shivam Jasra, M/s Arputham Aruna and Co., Mrs. Gurkamal A
Hora Arora, Amit Bhatnagar, Subodh Pandey, Abhishek Sharma, Ms.
Tatini Basu, Gautam Narayan, Kartik Seth, Ms. Shriya Gilhotra, Ms.
Garima Saxena for M/s Chambers of Kartik Seth, Advs. for the
Respondents.
The Judgment of the Court was delivered by B
NAGARATHNA J.
INDEX*
1. Bird’s Eye View of Controversy ……………………………4
2. Submissions …………………………………………………5 C
2.1. Submissions on behalf of Appellants:
2.1.1. Submissions on behalf of State of
Karnataka…..................................................5
2.1.2. Submissions on behalf of State of Kerala…...9
D
2.2. Submissions on behalf of Respondents :
2.2.1. Submissions on behalf of State of Nagaland....11
2.2.2. Submissions on behalf of State of Sikkim.…22
2.2.3. Submissions on behalf of State of Meghalaya..26
E
3. Reply Arguments………………………………………….29
4. Points for Consideration………………....………..……...34
5. Constitutional Scheme………………………………….…35
6. Acts under consideration :
F
6.1. The Lotteries (Regulation) Act, 1998…….………..62
6.2. The Karnataka Tax on Lotteries Act, 2004……….64
6.3. Kerala Tax on Paper Lotteries Act, 2005…………..67
7. Parameters of Taxation……………...………………………..69
G
8. Meaning of ‘betting and gambling’ and ‘lotteries’ …………73
9. Discussion……………………………………………………..100
10. Summary of Conclusions…………………………………….119

* Ed. Note: Pagination in the Index is as per the original judgment. H
530 SUPREME COURT REPORTS [2022] 18 S.C.R.

A These appeals have been preferred by the States of Karnataka,
Kerala and others being aggrieved by the judgments passed by the
Division Benches of the High Courts of the respective States. The Division
Bench of the High Court of Karnataka vide impugned judgments dated
27 th December, 2010 and 7th March, 2011 held that the Karnataka
Legislature had no legislative competence to pass the Karnataka Tax on
B
Lotteries Act, 2004 (hereinafter referred to as, “Karnataka Act, 2004”)
and, consequently, directed the amounts deposited by the respondents-
States who had organised the lottery schemes to be refunded to them
within four months from the date of receipt of the copy of the impugned
judgment.
C 2. Similarly, the Division Bench of the High Court of Kerala by
the impugned judgments dated 30th April, 2020, 9th August, 2021 and 10th
August, 2021, held that the Kerala legislature had no legislative
competence to enact the Kerala Tax on Paper Lotteries, Act, 2005
(hereinafter referred to as, “Kerala Act, 2005”) and declared it as
D unconstitutional and invalid. Liberty was reserved to the respondents-
States to seek refund of the tax already collected by the State of the
Kerala under the said Act on producing proper account and proof and a
direction was issued to the State of Kerala to pass appropriate orders
making refund of the amounts due based on evaluation of such proof,
without any delay.
E
3. Being aggrieved, the States of Karnataka, Kerala and others
are in appeal before this Court. The respondents herein are the States of
Nagaland, Arunachal Pradesh, Meghalaya, Sikkim, and others who are
the organisers of the lotteries as well as promoters, inter alia, in the
States of Karnataka and Kerala.
F
Bird’s eye view of the controversy:
4. The controversy in these cases is regarding the interpretation
to be given to the expression ‘betting and gambling’ in Entries 34 and 62
of List II of the Seventh Schedule of the Constitution of India. Further,
G whether the ‘lotteries organised by the Government of India or
Government of a State’, which is a subject in Entry 40 of List I also
encompasses the power to levy tax on the said lotteries? Consequently,
whether under Entry 62 of List II the State Legislature is denuded of the
power to levy tax on the said subject? In other words, whether the subject
covered in Entry 40 of List I restricts the scope and ambit of Entries 34
H and 62 of List II?If the answer is in the affirmative, whether the State
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 531
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

Legislatures have no legislative competence to levy tax on lotteries A
organised by the Government of India or Government of a State.
Consequently, the question in these cases is, whether, the legislature of
States of Karnataka and Kerala had the legislative competence to enact
Karnataka Act, 2004 and Kerala Act, 2005 respectively. Further, whether
these Acts are unconstitutional as being extra territorial in operation?
B
Submissions on behalf of Appellants:
Submissions on behalf of State of Karnataka:
5. Sri N. Venkataraman, learned Senior Counsel and Additional
Solicitor General appearing on behalf of the appellant-State of Karnataka
contended that the impugned legislation passed by the Karnataka State C
Legislature does not seek to impose a tax on the sale of lottery tickets.
He referred to the following two cases in support of his contention: (i)
Sunrise Associates vs. Govt. of NCT of Delhi – [(2006) 5 SCC 603]
wherein it was held that lottery tickets are only actionable claims and
not goods or services and cannot be taxed invoking Entry 54 of List II D
and; (ii) Skill Lotto Solutions Pvt. Ltd. vs. Union of India –[2020
SCC Online SC 990] wherein it was held that under the new Central
Goods and Services Tax (CGST) regime, post 1st July, 2017, actionable
claims are brought under the tax network of Goods and Services Tax
(GST).
E
6. Learned Senior Counsel submitted that the tax under question,
is neither a tax on sale of lottery tickets nor on lotteries as actionable
claims and any reference to Entry 54 of List II will be of no avail as tax
on lotteries is not a sales tax or Value Added Tax (VAT) or GST. He
contended that the tax under question is a tax on gambling traceable to
Entry 62 of List II which,inter alia, deals with tax on betting and F
gambling. It was contended that the Karnataka Tax on Lotteries Act,
2004 was passed in pursuance of the power under the aforesaid entry
and the Karnataka State Legislature had the legislative competence to
pass such a legislation.
7. Elaborating further, it was pointed out that Entry 40 of List I is G
only a ‘regulatory entry’ and the Lotteries (Regulation) Act, 1998
(hereinafter referred to as “Lotteries Act, 1998”) was enacted by the
Parliament in light of the same. That said Act deals with only ‘regulation’
and not with ‘taxation’ owing to the jurisdictional incompetence of the
Parliament in the area of taxation of State lotteries. Entry 34 of List II is
H
532 SUPREME COURT REPORTS [2022] 18 S.C.R.

A also a ‘regulatory entry’. The said entry deals with betting and gambling,
including lotteries that do not fall under the ambit of Entry 40 of List I.
To the contrary, Entry 62 of List II is a specific taxing entry inter alia on
gambling and betting. Learned Senior Counsel submitted that the source
of taxation is Entry 62 of List II and not Entry 54 of List II and the tax is
not on sale or purchase of lottery tickets.
B
8. It was further contended that on a conjoint reading of Section
2(4) and Section 6 of the Karnataka Act, 2004 it would indicate that the
‘charge’ or ‘tax’ is a tax on lotteries i.e., on the chance of those persons
participating in a lottery and the chance to win a prize in a lottery, which
comes within the nomenclature of gambling. The measure of taxation, in
C case of a bumper draw is Rs.1,50,000/- and in case of any other draw is
Rs.1,00,000/-.
9. Learned Senior Counsel further referred to Paragraph 6 of
Govind Saran Ganga Saran vs. Commissioner of Sales Tax –[AIR
1958 SC 1041] to state that when the source of taxation and occurrence
D of taxable event, along with the measure are available to tax a person,
such a levy cannot be questioned.
10. Sri Venkataraman next urged that where a regulatory power
and taxing power are traceable to different sources and are kept distinct
under the Constitutional scheme, in such a case, the regulatory entry
E cannot subsume a taxing entry as was held in M.P.V Sundararamier
and Co. vs. State of Andhra Pradesh–[AIR 1958 SC 468] and State
of West Bengal vs. Kesoram Industries Limited–[(2004) 10 SCC
201]. He further relied upon a Seven Judge Bench decision in Synthetics
and Chemicals Ltd. vs. State of Uttar Pradesh – [(1990)1 SCC 109]
F wherein it was held that the power to regulate, develop or control would
not include within its ken a power to levy tax or fee except when the
said impost is only for a regulatory purpose. That it is permissible for the
power to levy tax or fee for augmenting revenue to continue to vest with
the State Legislature despite the regulatory power being with the Union.
That ratio in synthetics and chemicals (supra) was reiterated recently
G in Jalkal Vibhag Nagar Nigam vs. Pradeshiya Industrial and
Investment Corporation – [2021 SCC Online SC 960] and had first
been laid down in RMDC vs. State of Mysore – [AIR 1962 SC 594].
11. Sri Venkatraman further contended that the tax imposed in
the instant case is not extra-territorial in its operation since the tax is on
H the act of gambling in the State of Karnataka and when more than one
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 533
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

State is involved, the nexus theory test has to be applied. Reliance was A
placed on State of Bombay vs. R.M.D. Chamarbaugwala – [AIR
1957 SC 699], wherein the requirement of fulfilling three principles,
namely, real and not illusory connection; liability sought to be imposed be
pertinent to that connection and the connection affecting merely the
policy and not validity of legislation, were stipulated. In such a case,
B
when there are participants from State of Karnataka in the act of
gambling, there is a real connection to the taxable event and the levy
under the impugned legislation is pertinent to that connection although
the lottery is organised by any other State in the State of Karnataka.
12. It was further contended that lotteries are res extra
commercium i.e., outside the ambit of trade and commerce and therefore, C
it will neither get protection under Art. 19(1)(g) relating to trade,
occupation, business or commerce nor the protection under Article 301
dealing with inter-state trade, commerce and business, even if the State
happens to be the operator, as was held in the cases of R.M.D.
Chamarbaugwala (supra) and B.R. Enterprises vs. State of Uttar D
Pradesh – [(1999) 9 SCC 700].
Submissions on behalf of State of Kerala:
13. Sri Pallav Shishodia, learned Senior Counsel appearing for the
appellant-State of Kerala, adopted the submissions made by learned Senior
Counsel for the State of Karnataka. He made the following additional E
submissions:
He submitted that under the Kerala Act, 2005 and the Rules made
thereunder, the respondents were liable to pay the tax in advance before
any draw, under Section10 thereof. The respondents herein in fact filed
a writ petition seeking a writ of mandamus against the appellant-State of
F
Kerala directing them to accept advance tax. In addition, a companion
petition was filed challenging Section10 of the aforesaid Act which was
decided by the learned Single Judge of the High Court of Kerala on 10th
January, 2007 and thereafter affirmed by the Division Bench on 30th
March, 2007. The matter came up to this Court and vide Order dated
16th July, 2014 the High Court’s finding was affirmed in respect of G
accepting advance tax; however, it did not accept the challenge to the
aforesaid section.
14. Sri Shishodia, learned Senior Counsel, contended that
opportunity was granted to the respondents to prove that the burden of
tax paid during the period 2006-2010 was not passed on to consumers/ H
534 SUPREME COURT REPORTS [2022] 18 S.C.R.

A purchasers of lottery tickets. That the same is contrary to law and was
completely unwarranted in the present case. In support of his argument,
he fervently relied on Mafatlal Industries Ltd. vs. Union of India -
[(1997) 5 SCC536] where it was held that there is a rebuttable
presumption that an indirect tax borne by an assessee is passed on to
consumers. Even when challenge to constitutionality of a tax succeeds,
B
the relief of refund can be granted only when the assessee makes a
claim to allege and establish that as a fact,the burden of tax collected in
the interregnum was not passed on to consumers.
15. Lastly, Sri Shishodia, learned Senior Counsel, contended that
the tax period in the instant case is limited to the years 2006-2010
C whereafter lotteries of the State of Sikkim were discontinued in the State
of Kerala because large scale frauds were reported. The said ban was
made by the Central Government in exercise of power under Section 6
of the Lotteries Act, 1998 which was confirmed on 12 th June, 2015 after
an investigation by the CBI and further enquiry. He urged that if the
D submission that the State cannot tax lotteries at all is to be accepted by
this Court, then the same should be held prospectively to validate non-
refund of recoveries made of far. He drew our attention to Somaiya
Organics (India) Ltd. vs. State of Uttar Pradesh – [(2001) 5 SCC
519] wherein I.C. Golaknath vs. State of Punjab – [AIR 1967 SC
1643] and India Cement Ltd. vs. State of Tamil Nadu –
E [(1990)1SCC12] have been relied upon.
Submissions on behalf of Respondents:
Submissions on behalf of Nagaland:
16. Sri C. Aryama Sundaram, learned Senior Counsel appearing
F on behalf of the State of Nagaland in Civil Appeal No.10467 of 2011raised
the following main contentions:
(i) Contentions pertaining to the legislative competence,
or the lack thereof, of the State of Karnataka.
(ii) That the impugned Act, in effect seeks to impose tax on
G the sale of lotteries.
(iii) That the impugned Act seeks to operate extra-
territorially.
(iv) Contentions pertaining to the exigencies faced by North-
H Eastern States in generating revenue.
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 535
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

17. Sri. C. Aryama Sundaram, learned Senior Counsel, supported A
the judgment of the High Court of Karnataka and contended that the
State of Karnataka had no legislative competence to impose tax on the
lotteries organised by the Governments of the Respondents-States. It
was submitted that lotteries organised by the Government of India or by
the Government of any State, fall within the ambit of Entry 40 of List I
B
and therefore any legislation pertaining to such lotteries may only be
enacted by the Parliament.
18. It was next contended that lotteries organised by the
Government of India or by the Government of any State, were not within
the legislative fields covered under Entries 34 or 62 of List II which
pertain to the power of the State Legislature to make laws to regulate C
‘betting and gambling’ and to impose ‘taxes on luxuries, including taxes
on entertainment, amusements, betting and gambling,’ respectively. That
although the expression ‘betting and gambling’ may be construed as the
genus, within which ‘lotteries’ is a species, the specific field of lotteries
organised by the Government of India or by the Government of any D
State, has been carved out of the genus of ‘betting and gambling’ and
been placed under Entry 40 of List I, meaning thereby, that the same
may be regulated or subjected to tax, only by the Parliament. In other
words, it was contended that taxes on betting and gambling as envisaged
under Entry 62 of List II, would be limited to those lotteries which are
neither organised by the Government of India nor by the Government of E
any State. It was submitted that since the Act in question, enacted by
the Legislature of the State of Karnataka, seeks to impose tax on the
lotteries organised by the Central Government or by the Government of
a State, it is beyond the legislative competence of State of Karnataka.
That the State of Karnataka by enacting the impugned Act has attempted F
to legislate on an aspect which lies within the exclusive legislative domain
of the Parliament and therefore the said Act is ultra vires the Constitution
and is liable to be declared so.
19. In order to buttress the above contentions, learned Senior
Counsel placed reliance on the following judgments of this Court: G
(i) H. Anraj vs. State of Maharashtra – [1984 (2) SCC 292]
wherein this Court considered whether the State of
Maharashtra could impose a ban on the sale of lottery tickets
of other States, by relying on an executive order of the
President under Article 258 (1) of the Constitution which H
536 SUPREME COURT REPORTS [2022] 18 S.C.R.

A entrusted the State Government with the executive power
of the Union as regards the conduct of lottery. This Court
held that the Parliament has exclusive power to make laws
in respect of lotteries organised by the Government of India
or the Government of a State. It was further observed that
State organised lotteries were specifically taken out of the
B
ambit of the legislative field of States from the expression
‘betting and gambling’ under entry 34 of the State list.
(ii) State of Haryana vs. M/s Suman Enterprises – [(1994)
4 SCC 217] is a case where this Court, in deciding whether
the State of Haryana could issue a Notification imposing a
C ban on the lotteries of other states, held that regulation of
lotteries organised by other states is not a State subject but
is within the exclusive regulatory power of the Parliament
under Entry 40 of List I.
20. It was submitted that although the afore-cited decisions make
D no specific reference to Entry 62 of List II and only observe that State
organised lotteries were specifically taken out of the ambit of Entry 34
of List II, ‘betting and gambling’ as appearing in both these entries must
be construed in a similar manner; i.e. that they are inclusive only of
those lotteries which are organised other than by the Government of
E India or by the Government of any State. In this regard, Jindal Stainless
Ltd. vs. State of Haryana – [2017 (12) SCC 1] was pressed into
service to contend that the same expression, if used in different entries
in the same List, would have the same meaning. Therefore, although
State organised lotteries have specifically been carved out of the
expression ‘betting and gambling’ as appearing in Entry 34 of List II, it
F may be deemed that ‘betting and gambling’ as appearing in Entry 62 of
List II is also not inclusive of State organised lotteries.
21. It was further urged in this regard that if Entry 34 of List II is
a general entry which deals with the regulatory power of the State
Legislature in the area of ‘betting and gambling’, Entry 62 of List II
G vests a more specific power of taxation over ‘betting and gambling’ with
the State Legislature. Once it has been held that a given expression, as
appearing in a general entry would be construed to exclude a certain
item, then it would naturally follow that such item would also be excluded
from a specific entry which employs the said expression. In the instant
H case, lotteries organised by the Government of India or the Government
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 537
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

of any State have been specifically excluded from the ambit of ‘betting A
and gambling’ as appearing in Entry 34 of List II, therefore, it would
follow that it would also be excluded from Entry 62 of List II which is a
narrower power, only dealing with taxation. Reference was made to
Prof. Yashpal vs. State of Chhattisgarh – [2005 (5) SCC 420] wherein
it was held that a narrow or restrictive interpretation would generally not
B
be accorded to a legislative heading which is general in nature. In this
regard it was contended that although a general entry is not usually
given a restrictive meaning, when in exceptional cases a restrictive
interpretation is given, such interpretation should be given effect to not
only in connection with the general entry, but should also be extended to
specific entries which employ the same term as was interpreted. C
22. It was next contended that the sole and exclusive power of
imposition of taxes which are beyond the legislative fields covered under
entries specified in List I and List II, would vest only with the Parliament
by virtue of Entry 97 of List I read with Article 248 (3) and Article 265
of the Constitution of India. In support of the above contention, learned D
Senior Counsel for the State of Nagaland relied on the decision in Union
of India vs. Harbhajan Singh Dhillon – [1971 (2) SCC 779], wherein
this Court while dealing with the question as to the legislative competence
to enact a Legislation pertaining to wealth tax, held that while the subject
matter of wealth tax is not specifically covered under any of the entries
of the three Lists of the Constitution, the Constitution has not denied the E
Union Government power to levy wealth tax and such power would be
traceable to Entry 97 of List I.
That the impugned Act, in effect seeks to impose tax on the
sale of lottery tickets:
F
23. It was submitted on behalf of the State of Nagaland that the
impugned Act in fact, seeks to impose a tax on lotteries organized by the
Government of India or by the Government of any Stateand that legislative
competence to enact such statute could not be traced to Entry 62 of List
II. The said Entry deals with the power to impose ‘taxes on luxuries,
including taxes on entertainment, amusements, betting and gambling.’ G
The event or incidence for imposition of such tax would be either the
conduct of lotteries or the sale and purchase of lottery tickets. That by
enacting the impugned Act, what the State Legislature sought to tax
was the sale of lottery tickets, which was not permissible in light of the
decision of this Court in Sunrise Associates vs. Government of Delhi H
538 SUPREME COURT REPORTS [2022] 18 S.C.R.

A – [(2006) 5 SCC 603]. In the said case, it was held that lottery tickets
were not goods within the meaning of the Sales Tax Act and therefore
they cannot be subject to sales tax.
That the impugned Act, in a clandestine manner, sought to impose
sales tax on the sale of lottery tickets which is not permissible.
B 24. In support of the said contention, the statement of objects and
reasons of the impugned Act was referred to, which provides that it has
been enacted with an intention “to regulate the actual number of draws
held by any lottery promoter.” It was submitted that while the statement
of objects and reasons has been worded in a manner as if the legislation
C would seek to regulate the quantum of betting and gambling activities or
the number of draws held by a lottery promoter, in effect, the tax sought
to be imposed by the impugned legislation is in the nature of sales tax.
That tax was being levied on the proceeds from the sale of lottery tickets
and this would point to the tax being in the nature of sales tax. It was
submitted that the impugned Act does not expressly employ the term
D ‘sale of lottery tickets’ but seeks to tax the same under the guise of
regulating the number of draws held by a promoter.
25. Alternatively, it was contended that even if it is assumed for
the sake of argument that the tax was being imposed, not on the sale of
lottery tickets but on the conduct of lottery activities, including formulation
E and notification of scheme of lotteries, printing of lottery tickets,
transportation of lottery tickets, conducting of the draw, declaration of
winners, no taxable event relatable to activities listed hereinabove had
occurred within the State of Karnataka. That in order for a tax to be
imposed by a State, the taxable event would have to occur within the
F State. That, the only event that has occurred within the State of
Karnataka, was the sale of lottery tickets and the same is not taxable.
Hence, it was submitted that the Appellants herein were seeking to do
indirectly, that which could not have been done directly.
That the impugned Act seeks to operate extra-territorially:
G 26. Sri Aryama Sundaram next contended that for a State to impose
tax on any activity, there ought to be a territorial nexus between the
activity sought to be taxed and the levy of the tax. In the instant case,
even if the submission made by on behalf of the State of Karnataka that
the activity sought to be taxed is the propensity to participate in lotteries,
no part of such activity has arisen or taken place within the State of
H
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 539
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

Karnataka. All activities which are to be undertaken for the conduct of A
lotteries, such as formulation and notification of the scheme of lotteries,
printing of lottery tickets, transportation of lottery tickets, conducting of
the draw, declaration of winners, were undertaken outside the territorial
limits of Karnataka and therefore, the conduct of lotteries cannot be
subject to tax by the State of Karnataka. In this regard, reference was
B
made to Article 246 (3) of the Constitution of India to contend that a
State Government has the power to enact laws for the State or any part
thereof. A State Government does not have the power to extend its laws
beyond its territorial limits. If a State law is allowed to operate in relation
to activities which are conducted beyond its territorial limits, it would
have the effect of encroaching upon the legislative power of other States. C
27. Learned Senior Counsel appearing for the State of Nagaland
next submitted that the decision of this Court in R.M.D.
Chamarbaugwala (supra) relied upon by the appellants would not come
to their aid in the instant case. That in the said case, several activities,
such as the sale and distribution of forms for the lottery and prize D
competitions, the collection of entry fees, publication of advertisements
pertaining to the lottery and prize competitions, were all conducted within
the State of Bombay and it was in that context that this Court held that
the State of Bombay possessed legislative competence to enact the
Bombay Lotteries and Prize Competitions Control and Tax Act, 1948
which sought to control and levy tax on lotteries and prize competitions E
in the State of Bombay. In the said case, two conditions were laid down
by this Court in order to establish territorial control: (a) real and not
illusory connection; (b) the liability sought to be imposed must necessarily
pertain to the said connection. In this context, it was urged that the State
Acts impugned in these cases would satisfy the aforestated conditions F
only qua the sale and distribution of lottery tickets, which activity is in
any case not taxable. Therefore, reliance placed by the appellants on
the said case was misplaced.
Contentions pertaining to the exigencies faced by North-
Eastern States in generating revenue: G
28. It was submitted that Section 10 of the impugned legislation
requires the State which organises the lottery sought to be taxed, to
deposit taxes in advance. This has resulted in a situation which is
detrimental to the economic necessities of the State of Nagaland. Learned
Senior Counsel explained the difficulty that may arise if the said scheme H
540 SUPREME COURT REPORTS [2022] 18 S.C.R.

A is permitted to continue: The State of Karnataka collects the tax amount
in advance. The amount of tax to be paid is calculated having no regard
to the number of tickets sold but is based on the entire scheme or draw.
Such a requirement may result in an absurd situation where despite there
being negligible or no sale of lottery tickets, as may be the case
sometimes, the State of Karnataka would be entitled to enjoy the tax on
B
the entire scheme.
29. It was also urged that if the impugned Act is held to be valid
then it would be open to the Legislatures of each of the States in the
Country to enact a similar legislation and this would result in a situation
of multiple taxation of the same event. Further, if the organising State is
C required to pre-deposit the tax pertaining to the scheme floated, in each
State where a similar enactment may be made, it would result in a situation
where lottery schemes would no longer be a source of revenue to the
organising State. Reference was made to the decision of this Court in
B.R. Enterprises(supra)wherein the importance of lotteries, as a source
D of revenue to North-Eastern States was recognised. It was urged that
the State of Karnataka must not be permitted to curtail the rights of
North- Eastern States to conduct lotteries.
30. On the aforesaid submissions, learned Senior Counsel appearing
for the State of Nagaland sought dismissal of the appeals.
E Submissions on behalf of State of Sikkim:
31. Sri S.K. Bagaria, learned Senior Counsel appearing for the
State of Sikkim, First Respondent in Civil Appeal No. 911 of 2021, adopted
the contentions advanced by Sri Aryama Sundaram, learned Senior
Counsel appearing on behalf of the State of Nagaland in Civil Appeal
F No. 10467 of 2011. He further elaborated on the submissions as regards
the exclusion of the species of ‘lotteries’ from the genus of ‘betting and
gambling’ as appearing in Entries 34 and 62 of List II vide H. Anraj
(supra) and M/s Suman Enterprises (supra).He contended that although
the decision of this Court in H. Anraj (supra) excluded ‘lotteries’ from
G the legislative field of the State Legislature while examining Entry 34 of
List II and no reference was made in the said judgment to Entry 62 of
List II, it may be construed that ‘lotteries’ organised by the Government
of India or the Government of a State are not included within the
expression ‘betting and gambling’ appearing in Entry 34 as well as Entry
62 of List II. In support of this contention, reference was made to a
H decision of this Court in R.M.D. Chamarbaugwala (supra) wherein a
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 541
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

co-relation was established by the Court between the expression ‘betting A
and gambling’ as appearing under Entry 34 of List II and Entry 62 of
List II, by holding that once it is held that a legislation falls under the
topic of ‘betting and gambling’ under Entry 34 of List II, it would follow
that the tax imposed by the same legislation would fall under Entry 62 of
List II. In this context, it was contended that since it has been
B
unequivocally declared that the tax imposed on ‘betting and gambling’
under Entry 62 of List II seeks to tax the same activity which is regulated
under Entry 34 of List II, it logically follows that the expression ‘betting
and gambling’ must be given the same meaning and interpretation in
both these entries. In other words, an interpretation which suggests that
‘lotteries’ has been carved out of ‘betting and gambling,’ should be made C
equally applicable to Entry 62, as is applicable to Entry 34 of List II.
32.It was next contended that the impugned Act, namely, the
Kerala Lotteries Act, makes no distinction between the taxing event and
the measure of tax, i.e., a distinction between the subject matter of tax
and the standard by which the amount of tax is to be measured. Reference D
was made to Federation of Hotel and Restaurant Association of India
vs. Union of India - [(1989) 3 SCC 634] to contend that the subject of
a tax is different from the measure of the levy of tax. That the measure
of tax is not determinative of its essential character or the competence
of the legislature. In this regard, it was submitted that ‘draw’ of lotteries,
as appearing in Section 6 of the impugned Act, is only a measure and not E
the taxable event. That the impugned Act is ambiguous and uncertain
and in the guise of tax on lotteries, seeks to levy tax on sale of lotteries.
33. Reference was made to specific provisions of the impugned
Act of State of Kerala to contend that the tax sought to be imposed was
in effect a tax on sale of lottery tickets. Section 6 of the said Act is the F
charging provision. It merely states that the tax sought to be levied under
the Act is ‘tax on paper lotteries’. Therefore, it is unclear as to what
aspect of the conduct of lotteries is sought to be subjected to taxation.
That while section 2 (i) of the said Act has defined ‘lottery’ to mean a
lottery organised by the Government of India or the Government of any
G
State, nothing can be imputed from such definition as to the chargeability
or the taxing event. It was further urged that Section 7(1) and 8(1) of
the Act mandatorily require that any promoter involved in the sale of
lottery tickets be registered under the Act and file returns. Section 8(2)
imposes the liability of tax on a promoter who has registered and filed
returns under Section 7(1) and 8(1) of the Act. In this regard it was H
542 SUPREME COURT REPORTS [2022] 18 S.C.R.

A submitted that it is the promoter, who is involved in the sale of the tickets,
who is required to bear the burden of tax and therefore, what the State
Government has done is to levy sales tax on the sale of paper lotteries in
Kerala, which is impermissible in light of the decision of this Court in
Sunrise Associates (supra). That in the absence of any clarity in the
charging provision as to what would be the taxable event and on a conjoint
B
reading of Section 7 and 8 of the impugned Act, the only deduction that
could be made would be that the event taxed was the sale of lotteries.
34. In reply to the contention advanced on behalf of the State of
Kerala, to the effect that the burden of tax imposed on the State of
Sikkim was being passed on to the consumer and therefore, the State of
C Sikkim was not entitled to claim refund of tax imposed even in the event
that the impugned Act was struck down, as receiving a refund would
amount to unjust enrichment, it was urged that the doctrine of unjust
enrichment was not applicable to a State vide Mafatlal Industries Ltd.
(supra). Therefore, the amount of tax collected by the State of Kerala
D without jurisdiction is liable to be refunded.
Submissions on behalf of the State of Meghalaya:
35. Sri Arvind P. Datar, learned Senior Counsel appearing for the
State of Meghalaya and Sri Amit Kumar, learned Advocate General for
the State of Meghalaya adopted the contentions of Sri C. Aryama
E Sundaram, learned Senior Counsel appearing for the State of Nagaland.
He made an additional argument as regards the exclusive Parliamentary
power to impose taxation on lotteries organised by the Government of a
State. It was submitted that in determining the legislative competence
pertaining to the legislative field of ‘State Lotteries’ reference must be
F made to the Government of India Act, 1935. The said Act provided in
Entry 47 of List I for the regulation of ‘State Lotteries.’ The said Act
provided for regulation of ‘betting and gambling’ in Entry 36 of List II
and the power to impose ‘taxes on luxuries, including taxes on
entertainments, amusements, betting and gambling’ under Entry 50 of
List II. In that context, it was urged that State lotteries have always
G been within the exclusive legislative domain of the Parliament and have
been carved out of the expression ‘betting and gambling’ as appearing in
List II.
36. It was further contended that the power to impose taxation on
lotteries is inherent in the general legislative power under Entry 40 of
H List I. Learned Senior Counsel referred to certain Entries of List I and
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 543
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

II to contend that wherever the legislative competence relatable to the A
general legislative field or regulatory field is different from the taxation
field, such separation has been expressly stated in the Constitution. Since
such distinction has not been made in the context of lotteries covered
under Entry 40 of List I, the scope of this entry is unrestricted and every
type of legislation qua Central and State organised lotteries is within its
B
ambit.
37. Sri Datar next contended that to uphold the validity of the
impugned legislations and allow them to operate, would be against the
principles of federalism and inter-governmental immunity. In this regard,
reliance was placed on New Delhi Municipal Council vs. State of
C
Punjab –[(1997) 7 SCC 339] wherein this Court, after discussing the
principle of inter-governmental immunity as it operates in the United
States of America, held that the said principle would operate in India as
well, although to a limited extent. In the Indian context, the immunity
conferred on the Union, from any action of the State, is absolute; while
immunity to States from the actions of the Union is as per Article 289 of D
the Constitution. It was submitted in this regard that the impugned
Legislations seek to impose interest and penalties on the Union for non-
payment of taxes levied on it and also prescribes with holding monies
due to the Union in order to recover the tax due. That such provisions of
the statute pose a threat to the principle of inter-governmental immunity,
E
which is well recognised and currently operating in India.
38. Learned Senior Counsel appearing for the State of Meghalaya
urged that the doctrine of pith and substance and the aspects theory
have no relevance to the instant matter. That the doctrine of pith and
substance is employed by a Court to save a statute from being declared
F
ultra-vires, when the main purpose of the statute is to legislate on an
aspect which is within the legislative competence of the legislature that
has enacted it, while an incidental or ancillary purpose sought to be
achieved by the statute has the effect of branching into another list.
However, in the instant case, the impugned Statutes have only one purpose
viz. taxing Central and State organised lotteries. Therefore, they are in G
their entirety encroaching on the exclusive legislative domain of the
Parliament. In a similar vein, it was contended that the aspects doctrine
cannot be pressed into service in order to uphold the vires of the impugned
Legislations as the said doctrine may be employed only when two aspects
are found in the statute and each of such aspects is traceable to a
H
544 SUPREME COURT REPORTS [2022] 18 S.C.R.

A legislative field in a different List. However, in the instant case, the
impugned legislations only have one aspect, traceable to the legislative
field covered by a single Entry, viz. Entry 40 of List I.
Reply Arguments:
39. Learned Senior Counsel, Sri Venkataraman, appearing for the
B State of Karnataka, in response to the submissions made on behalf of
State of Nagaland, stated that if the submission is that by virtue of Entry
40 of List I, the Union gains taxing power under Entry 97 of List I, it
would be a self-defeating submission. It was also contended that recourse
to Entry 97 of List I can only be taken after exhausting specific Entries
C under List I and List II. It cannot be contented that the power is secured
under Entry 97 of List I as Entry 62 of List II has never undergone any
change, mutilation or any denudation till date.
40. In this regard it was explained that Entry 42 of List I refersto
inter-state trade and commerce. That originally the tax on inter-state
trade and commerce along with local sales tax was levied only by the
D
State under Entry 54 of List II. Only after the 6 th Constitutional
Amendment Act in 1956, the powers of the State were denuded and the
Union was vested with the exclusive power by insertion of Entry 92A in
List I. When Entry 62 of List II has not been denuded, it cannot be
construed that Entry 40 of List I can subsume within itself, the taxation
E power as would be available under Entry 97 of List I, overlooking the
Dhillon Test.
41. In response to the submissions of the State of Meghalaya in
respect of Article 246(1) that under the said provision, Parliament has
exclusive power to make laws with respect to any of the matters
F enumerated in List I and therefore, Entry 40 of List I is good enough to
include power of taxation on lotteries organised by Central or State
Governments, it was urged that the said provision cannot be read in
insolation. He submitted that List I and II vest exclusive powers in Union
and States respectively and therefore one cannot be read in insolation to
the other.
G
42. It was further submitted that the Constitution Bench in RMDC
vs. State of Mysore (supra) had clearly stated that the surrender of a
regulatory or any other power to the Union cannot mean a surrender of
the taxation power. Taxing powers are always identified independently
and unless such power is transposed, denuded or mutilated, it cannot be
H read by implication as held in M.P.V. Sundararamier (supra).
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 545
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

43. In respect of the submission relating to Article 289, Sri A
Venkataraman pointed out that there is a ‘Constitutional bar’ against the
Union taxing the Income of a State, and the same cannot be taxed by
virtue of Article 289. He stated that any activity conducted per se by the
State, in this case conducting State Lotteries, cannot be taxed under
Article 289.
B
44. Learned Senior Counsel then addressed the submission raised
by the State of Nagaland that since the Union is imposing tax on lotteries
under the GST regime, the power of taxation would vest with the Union
even under the pre-GST era. He stated that the aforesaid submission
was not rightas it was incorrect to say that the Union is taxing under the
GST regime. It was urged that GST is a unique tax traceable to Article C
246A both in terms of power and field of legislation, under which the
taxable event is one,namely supply and the taxing power vests both with
the Union and the States. However, in the present case at hand, Article
246 is the source of power and Entries in List I and II are fields of
legislation which have to be interpreted. D
45. In response to the argument that lottery is the main source of
income for the North - Eastern States and grave prejudice would be
caused to State revenue if the appellant-States are permitted to tax,
learned Senior Counsel urged that there is no equity is taxation laws. It
was submitted that the respective North - Eastern States have earned E
their lottery revenues using the territory of other States. In such a case,
it is not open to plead that such States should not use their taxing powers
only because that would be detrimental to North - Eastern States.
46. Learned Senior Counsel Sri Pallav Shishodia for the State of
Kerala, in furtherance of the contentions of the learned Senior Counsel F
appearing for the State of Karnataka, placed reliance on the decision
of the Constitution Bench of this Court in Kesoram Industries Limited
(supra) wherein it was held that the ‘power of regulation and control’
is separate and distinct from the ‘power of taxation’ and so are the
fields for the purpose of legislation. It was submitted that the States
can legislate to regulate ‘betting and gambling’ in their respective states G
except with respect to lotteries organised by other States which shall
remain governed by the Lotteries Act, 1998 enacted by the Parliament
having legislative competence under Entry 40 of List I. However, levy
of tax on ‘betting and gambling’ is a different field of legislation under
Entry 62 of List II. H
546 SUPREME COURT REPORTS [2022] 18 S.C.R.

A 47. It was further contended that the regulation of gambling and
taxing of gambling activity being two separate and distinct fields of
legislation, the width of legislative power of States to tax State organised
lotteries under Entry 62 of List II cannot be curtailed by regulatory powers
of Centre under Entry 40 of List I even though only regulatory powers
of states to regulate State organised lotteries are taken out from Entry
B
34 of List II.
48. To buttress his contention, learned Senior Counsel for the State
of Kerala referred to Chapter 5, Subsidiary Rules in Principles of Statutory
Interpretation authored by Justice GP Singh under the heading ‘Same
Word Same Meaning’. He contended that it is a settled principle of
C interpretation that the same expression can have different meanings in
the same statute or even the same provision, if the context so required.
Learned Senior Counsel cited the case of Maharaj Singh vs. State of
UP – [1977 (1) SCC 155] in this behalf.
49. It was further urged that the respective contexts of the
D expression ‘betting and gambling’ under Entry 34 and Entry 62 both in
List II are very different. Entry 34 of List II describes the legislative
field of regulatory powers of the State over ‘betting and gambling’
while Entry 62 of List II describes the legislative field of taxation on
‘betting and gambling’ by States. Learned Senior Counsel for the State
E of Kerala emphasized upon the judgment of this Court in Kesoram
Industries Limited (supra) and stated that the principles in the aforesaid
case have also been approved in the case of Jindal Stainless Limited
(supra).
50. Learned Senior Counsel submitted that there were several
F examples where regulatory powers are with the Centre and the taxing
power is with the States. To fortify his argument, he relied upon State of
Uttar Pradesh vs. Vam Organic Chemicals Limited and Ors. – [2004
(1) SCC 225] wherein it was held that the tax or fee imposed for
regulatory purposes must not be mistaken as tax under taxing entry. The
regulatory power cannot be used for plenary taxation. However, the
G levy of some regulatory charges under the Lotteries Act, 1998 is not a
tax and does not in any manner whittle down the scope of Entry 62
ofList II.To conclude, learned Senior Counsel for the State of Kerala
submitted that one transaction can have several aspects to attract both
central and state taxes as was held in Federation of Hotel and
H Restaurant Association of India (supra).
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 547
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

51. Further, learned Senior Counsel brought to the attention of A
this Court, the principle, that ‘specific’ excludes ‘general’ and that the
taxing entry would limit the scope of general regulatory entry, as was
explained in the Commentary on Constitution of India (2nd Edition, Volume
2, Pg.2145) authored by Sri Arvind P. Datar, Senior Advocate.
52. Learned Senior Counsel for the State of Kerala stated that B
Entry 62 of List II is now whittled down in view of the now firmly
established GST regime. He stated that the interpretation of Entry 62 of
List II in the present set of appeals concerns taxes paid in the past.
Points for consideration
53. Having heard learned Senior Counsel and learned counsel C
appearing for the respective parties and upon perusal of the record, the
following points would arise for our consideration:
(i) Whether the subject ‘lotteries organised by the Central
Government and the State Governments’ being carved out
of ‘betting and gambling’ which is dealt withunder Entry 34 D
of List II and being placed in Entry 40 of List I would also
exclude the power of taxation on the same in Entry 62 of
List II?
(ii) Whether the power of taxation on ‘betting and gambling’ is
within the ambit of Entry 62 of List II? E
(iii) Whether the impugned Acts passed by the Karnataka and
Kerala State Legislatures are within the legislative
competence of Entry 62 of List II, and are therefore valid
pieces of legislation?
(iv) What order? F

Constitutional Scheme
54. For easy and immediate reference, the following provisions of
the Constitution of India are extracted as under :
“245. Extent of laws made by Parliament and by the G
Legislatures of States –
(1) Subject to the provisions of this Constitution, Parliament may
make laws for the whole or any part of the territory of India, and
the Legislature of a State may make laws for the whole or any
part of the State. H
548 SUPREME COURT REPORTS [2022] 18 S.C.R.

A (2) No law made by Parliament shall be deemed to be invalid on
the ground that it would have extra territorial operation.
246. Subject matter of laws made by Parliament and by the
Legislatures of States - (1) Notwithstanding anything in clauses
(2) and (3), Parliament has exclusive power to make laws with
B respect to any of the matters enumerated in List I in the Seventh
Schedule (in this Constitution referred to as the ‘Union List’).
(2) Notwithstanding anything in clause (3), Parliament, and, subject
to clause (1), the Legislature of any State also, have power to
make laws with respect to any of the matters enumerated in List
C III in the Seventh Schedule (in this Constitution referred to as the
‘Concurrent List’).
(3) Subject to clauses (1) and (2), the Legislature of any State has
exclusive power to make laws for such State or any part thereof
with respect to any of the matters enumerated in List II in the
D Seventh Schedule (in this Constitution referred to as the ‘State
List’).
(4) Parliament has power to make laws with respect to any matter
for any part of the territory of India not included (in a State)
notwithstanding that such matter is a matter enumerated in the
E State List.
246A. Special provision with respect to goods and services
tax -
1) Notwithstanding anything contained in articles 246 and 254,
Parliament, and, subject to clause (2), the Legislature of every
F State, have power to make laws with respect to goods and services
tax imposed by the Union or by such State.
(2) Parliament has exclusive power to make laws with respect to
goods and services tax where the supply of goods, or of services,
or both takes place in the course of inter-State trade or commerce.
G Explanation. - The provisions of this article, shall, in respect of
goods and services tax referred to in clause (5) of article 279A,
take effect from the date recommended by the Goods and Services
Tax Council.]
X X X
H
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 549
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

248. Residuary powers of legislation – A
(1) Subject to Article 246A, Parliament has exclusive power to
make any law with respect to any matter not enumerated in the
Concurrent List or State List
(2) Such power shall include the power of making any law imposing
a tax not mentioned in either of those Lists B

X X X
265. Taxes not to be imposed save by authority of law-
No tax shall be levied or collected except by authority of law.
C
X X X
Entries 40 and 97 ofList I
40. Lotteries organised by the Government of India or the
Government of a State.
97. Any other matter not enumerated in List II or List III including D
any tax not mentioned in either of those Lists.
Entries 34 and 62ofList II
34. Betting and gambling.
62*. Taxes on luxuries, including taxes on entertainments, E
amusements, betting and gambling.
[*As it stood prior to its substitution with effect from 16.09.2016
which is relevant for the purpose of these cases].”
Some of the salient aspects concerning the distribution of the
legislative powers between the Parliament and State Legislature as per F
the three Lists of Seventh Schedule of the Constitution in the backdrop
of provisions could be alluded to.Article 246 of the Constitution deals
with the distribution of legislative powers between the Union and the
States. The said Article has to be read along with the three Lists namely
the Union List, the State List and the Concurrent List. The taxing powers G
of the Union as well as the States are also demarcated as separate
Entries in the Union List as well as the State List i.e. List I and List II
respectively. The Entries in the Lists are the fields of legislative powers
conferred under Article 246 of the Constitution. In other words, the Entries
define the areas of legislative competence of the Union and State
Legislature. H
550 SUPREME COURT REPORTS [2022] 18 S.C.R.

A 55. Article 246 deals with subject matter of laws made by
Parliament and by the Legislatures of States as follows :
(a) Clause (1) of Article 246 states that notwithstanding anything
in clauses (2) and (3) Parliament has exclusive power to
make laws with respect to any of the matters enumerated
B in List I (Union List). In this case, we are concerned with
Entry 40 of List I, which deals with Lotteries organised by
the Government of India or the Government of a State.
(b) Clause (2) of Article 246 of the Constitution, states that
notwithstanding anything in clause (3), the Parliament and
C the Legislature of any State also have the power to make
laws with respect to any matters enumerated in List-III
(Concurrent List).
(c) Clause (3) thereof, states that the Legislature of any State
has exclusive power to make laws for the State with respect
D to any matters enumerated in List-II (State List). However,
clause (3) of Article 246, is subject to clauses (1) and (2)
which begin with a non-obstante clause.
56. The power to legislate which is dealt with under Article 246
has to be read in conjunction with the Entries in the three Lists which
E define the respective areas of legislative competence of the Union and
State Legislatures. While interpreting these entries, they should not be
viewed in a narrow or myopic manner but by giving the widest scope to
their meaning, particularly, when the vires of a provision of a statue is
assailed. In such circumstances, a liberal construction must be given to
the Entry by looking at the substance of the legislation and not its mere
F form. However, while interpreting the Entries in the case of an apparent
conflict, every attempt must be made by the Court to harmonise or
reconcile them. Where there is an apparent overlapping between two
Entries, the doctrine of pith and substance is applied to find out the true
character of the enactment and the entry within which it would fall. The
G doctrine of pith and substance, in short, means, if an enactment
substantially falls within the powers expressly conferred by the
Constitution upon the legislature which enacted it, it cannot be held to be
invalid merely because it incidentally encroaches on matters assigned to
another legislature. Also, in a situation where there is overlapping, the
doctrine has to be applied to determine to which Entry, a piece of legislation
H could be related. If there is any trenching on the field reserved to another
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 551
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

legislature, the same would be of no consequence. In order to examine A
the true character of enactment or a provision thereof, due regard must
be had to the enactment as a whole and to its scope and objects. It is
said that the question of invasion into another legislative territory has to
be determined by substance and not by degree.
57. In case of any conflict between Entries in ListI and ListII, the B
power of Parliament to legislate under ListI will supersede when, on an
interpretation, the two powers cannot be reconciled. But if a legislation
in pith and substance falls within any of the Entries of ListII, the State
Legislature’s competence cannot be questioned on the ground that the
field is covered by Union list or the Concurrent list vide Prafulla Kumar
Mukherjee vs. Bank of Commerce, Khulna - [AIR 1947 P.C. 60]. C
According to the pith and substance rule, if a law is in its pith and
substance within the competence of the Legislature which has made it,
it will not be invalid because it incidentally touches upon the subject lying
within the competence of another Legislature vide State of Bombay vs.
FN Balsara – [AIR 1951 SC 318]. D
58. In Atiabari Tea Company Ltd. vs. State of Assam – [AIR
1961 SC 232], it has been observed by this Court that the test of pith
and substance is generally and more appropriately applied when a dispute
arises as to the legislative competence of the Legislature and it has to be
resolved by reference to the Entries to which the impugned legislation is E
relatable. When a question of legislative competence is raised, the test is
to look at the legislation as a whole and if it has a substantial and not
merely a remote connection with the Entry, the same may well be taken
to be alegislation on the topic vide Ujagar Prints vs. Union of India –
[AIR 1989 SC 516].
F
59. The expression used in Article 246 is ‘with respect to’ any of
the matters enumerated in the respective Lists. The said expression
indicates the ambit of the power of the respective Legislature to legislate
as regards the subject matters comprised in the various Entries included
in the legislative Lists. Hence, where the Entry describes an object of
tax, all taxable events pertaining to the object are within that field of G
legislation unless the event is specifically provided for elsewhere under
a different legislative head. Thus, the Court has to discover the true
character and nature of the Legislation while deciding the validity of the
Legislation. Applying the doctrine of pith and substance while interpreting
the legislative Lists what needs to be seen is whether an enactment H
552 SUPREME COURT REPORTS [2022] 18 S.C.R.

A substantially falls within the powers expressly conferred by the
Constitution upon the Legislature which enacted it. If it does, it cannot
be held to be invalid merely because it incidentally encroaches on matters
assigned to another Legislature vide FN Balsara (supra).
60. In Ujagar Prints (supra), it was observed that the Entries in
B the legislative Lists must receive a liberal construction inspired by a
broad and generous spirit and not in a narrow and pedantic manner. This
is because the Entries are not sources of legislative power but are merely
topics or fields of Legislation. The expression ‘with respect to’ in Article
246 brings in the doctrine of pith and substance in the understanding of
the exertion of the legislative power and wherever the question of
C legislative competence is raised, the test is whether the Legislation, looked
at as a whole, is substantially ‘with respect to’ the particular topic of
Legislation. For applying the principle of pith and substance, regard must
be had (i) to the enactment as a whole, (ii) to its main object, and (iii) to
the scope and effect of the provision.
D 61. Once the Legislation is found to be ‘with respect to’ the
legislative Entry in question unless there are other constitutional
prohibitions, the power would be unfettered. It would also extend to all
ancillary and subsidiary matters which can fairly and reasonably be said
to be comprehended in that topic or category of Legislation vide United
E Provinces vs. Atiqa Begum – [AIR 1941 FC 16].
62. Another important aspect while construing the Entries in the
respective Lists is that every attempt should be made to harmonise the
contents of the Entries so that interpretation of one Entry should not
render the entire content of another Entry nugatory vide Calcutta Gas
F Company vs. State of West Bengal – [AIR 1962 SC 1044]. This is
especially so when some of the Entries in a different List or in the same
List may overlap or may appear to be in direct conflict with each other,
in such a situation, a duty is cast on the Court to reconcile the Entries
and bring about a harmonious construction. Thus, an effort must be made
to give effect to both Entries and thereby arrive at a reconciliation or
G harmonious construction of the same. In other words, a construction
which would reduce one of the Entries nugatory or dead letter, is not to
be followed.
63. The sequitur to the aforesaid discussion is that if the Legislature
passes a law which is beyond its legislative competence, it is a nullity
H ab-initio. The Legislation is rendered null and void for want of jurisdiction
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 553
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

or legislative competence vide RMDC vs Union of India – [AIR 1957 A
SC 628].
64. Since these appeals concern interpretation, inter alia, of Entry
62 of List II, which is a taxation entry, it would be useful to refer to
certain other articles of the Constitution. Article 265 of the Constitution
of India states that no tax shall be levied or collected except by authority B
of law. That means not only the levy but also the collection of a tax must
be authorized by law. The tax to be levied must be within the competence
of the Legislature imposing the tax and the validity of the tax has to be
adjudged with reference to the competence of the Legislature at the
time the statute authorizing the tax was enacted. Further, the law imposing
the tax must have been validly enacted. Thus, power to tax cannot be C
inferred by implication. The source of power which does not specifically
speak of taxation cannot be interpreted by expanding its width as to
include therein the power to tax by implication or by necessary inference.
There must be a charging section specifically empowering the State to
levy the tax vide Kesoram Industries Limited. (supra). D
65. Bearing in mind the issues raised in this batch of cases, it is
unnecessary to consider the other aspects touching upon the validity of
the taxation laws made by a Legislature viz., that they ought not to
violate any fundamental right etc., as what is of more significance to the
present appeals is the question, whether, the impugned Acts contravene E
the specific provisions of the Constitution which impose limitation on
legislative power relating to particular matters.
66. Further, under Article 289, the Union cannot tax the property
and income of a State vide Re. Sea Customs Act – [AIR 1963 SC
1760]. This is based on the principles of federalism and inter- F
governmental immunity as adverted to by learned Senior Counsel Sri
Datar. However, under clause (2) of Article 289, the Union can impose
or authorize the imposition of, any tax to such extent, if any, as Parliament
may by law provide in respect of a trade or business of any kind carried
on by, or on behalf of, the Government of a State, or any operations
connected therewith, or any property used or occupied for the purposes G
of such trade or business, or any income accruing or arising in connection
therewith. Clause (2) of Article 289 states that Parliament may by law
declare any trade or business or any class of trade or business to be
incidental to the ordinary functions of government in which event, clause
(2) of Article 289 would not apply. H
554 SUPREME COURT REPORTS [2022] 18 S.C.R.

A 67. Further, when a power is conferred on the Legislature to levy
a tax, the power itself must be widely construed. It must include the
power to impose a tax and select the articles or commodities for the
exercise of such power. It must also include the power to fix the rate
and prescribe the machinery for the recovery of tax. In imposing taxes,
the Legislature can also appoint authorities for collecting taxes and may
B
prescribe the procedure for determining the amount of tax payable by
any individual and also ensure that there is no evasion of tax. All these
provisions are subsidiary to the main power to levy a tax vide Khyerbari
Tea Co. Ltd. vs. State of Assam – [AIR 1964 SC 925].
68. If a tax is ultra vires or unconstitutional then the party is
C entitled to have a refund of it from the government whether it has been
paid under protest or not. This Court has held that the payment of tax
which is without authority of law is payment made under a mistake
within the meaning of Section 72 of the Indian Contract Act. Then, in
such a case, question would arise, whether, the government to whom
D the payment had been made by mistake must repay it. Thus, the principle
of restitution or repayment of the tax simpliciter has been considered in
light of the doctrine of unlawful enrichment. The doctrine envisages that
when the State collects a tax from the tax payer without authority of
law, but if the taxpayer has already passed on the burden of the tax
money paid by him to the State to someone else and has recouped the
E money then the taxpayer is not entitled to ask for the restitution from the
State the money paid by him as unauthorised tax. In such circumstances,
the State cannot be asked to refund the tax money to the taxpayer on
the principle of unlawful enrichment. The Court may refuse the relief to
the concerned taxpayer who had ultimately paid the above but not to the
F intermediary to collect the amount from them and paid the same to the
government. It would all depend upon the facts and circumstances of
each case. With the passage of time, it has been held that no refund can
be granted so as to cause a windfall gain to any person when he has not
suffered the burden of tax. That the right of restitution is neither automatic
nor unconditional vide Mafatlal Industries (supra). In the said case it
G was held that refund claim can be allowed only when a person establishes
that he has not passed on the burden to others.
69. With the above preface, we shall consider the relevant case
law cited at the Bar on interpretation of an Entry in respect of taxation.

H
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 555
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

70. Under the Seventh Schedule of the Constitution, Lists I & II A
are divided essentially into two groups: One, relating to the power to
legislate on specified subjects and the other, relating to the power to tax.
In Hoechst Pharmaceuticals Ltd. vs. State of Bihar – [AIR 1983 SC
1019], it has been categorically held that taxation is considered as a
distinct matter for purposes of legislative competence.
B
71. It would be relevant to discuss the following judgments of this
Court in detail so as to bring out the pertinent principles of interpretation
of taxation Entries in List II even when regulation of an activity is provided
under an Entry in List I. They are (i) M.P.V. Sundararamier (supra)
and (ii) Kesoram Industries Ltd. (supra) while delving on these judgments
reference would also be made to other cases cited at the Bar, particularly C
Synthetics and Chemicals Ltd. (supra) and Harbhajan Singh Dhillon
(supra).
M.P.V. Sundararamier :
72. In M.P.V. Sundararamier (supra), the petitioners were dealers D
carrying on business in the city of Madras (now Chennai) for the sale
and purchase of yarn, and they had filed petitions under Article 32 of the
Constitution before this Court for the issuance of a writ of prohibition or
any other appropriate writ restraining the erstwhile State of Andhra
Pradesh from taking proceedings for imposing tax on certain sales
effected by them in favour of merchants who were residing or carrying E
on business in what was the erstwhile State of Andhra Pradesh, on the
ground, inter alia, that the said sales were made in the course of inter-
State trade, and that no tax could be levied on them by reason of the
prohibition contained in Article 286(2) of the Constitution. One of the
questions considered in the said case was, whether, tax on inter-State
F
sales was within the exclusive competence of Parliament, and whether
the Act impugned in the said case (Madras General Sales Tax Act, 1939;
‘Madras Act’, for short) and the amendment made thereof by the Madras
General Sales Tax (Amendment) Act No.25 of 1947, was in consequence
bad, as it authorized the State to levy the sales tax.
G
73. The contention was that Entry 42 of List I dealt with inter-
State trade and commerce and under that Entry, the Parliament had the
exclusive power to enact laws in respect of inter-State trade and
commerce which also included the power to impose a tax on inter-State
sales and the State Legislature had therefore no competence under the
Constitution to enact a law imposing tax on such sales and the laws H
556 SUPREME COURT REPORTS [2022] 18 S.C.R.

A passed by the States after the enactment of the Constitution, imposing
such a tax were ultra vires and void and therefore, the Act impugned in
the said case was also ultra vires. It was contended that the content of
Entry 42 in List I was the same as that of the Commerce Clause of the
American Constitution and it must therefore be construed as having the
same effect. It was also argued that the power to impose tax on inter-
B
State sales did not vest with the State. That after the enforcement of the
Constitution, no law of a State could impose a tax on inter-State sales
and hence section 22 of the Madras Act impugned in the said case
which came into force after the Constitution was enforced and sought
to impose such a tax, was bad in law.
C 74. The aforesaid contentions were considered in light of the
Government of India Act, 1935 under which there was no entry
corresponding to Entry 42 of List I of the Constitution but there was
Entry 48 in List II which corresponded to Entry 54 of List II of the
Constitution. That under Entry 48 of List II of the Government of India
D Act, 1935 the State had power to pass a law imposing a tax on inter-
State sales because the term of the Entry was wide enough to include
both inter-State sales as well as intra-State sales. However, after the
Constitution came into force for the first time a new Entry 42 of List I
was added and consequently, the States were deprived of the power to
tax inter-State sales which had earlier been within their legislative
E competence under Entry 48 of List II, under the Government of India
Act, 1935.
75. It was observed by this Court that while enacting Entry 42
of List I the Constitution makers could have included the power to
tax on inter-State sales instead of leaving that to be inferred by
F construction of Entry 42 of List I in light of the Commerce Clause
under the American Constitution. While saying so in paragraph 51, it
was observed as follows :
“51. In List I, Entries 1 to 81 mention the several matters over
which Parliament has authority to legislate. Entries 82 to 92
G enumerate the taxes which could be imposed by a law of
Parliament. An examination of these two groups of Entries shows
that while the main subject of legislation figures in the first group,
a tax in relation thereto is separately mentioned in the second.
Thus, Entry 22 in List I is “Railways”, and Entry 89 is “Terminal
H taxes on goods or passengers, carried by railway, sea or air; taxes
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 557
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

on railway fares and freights”. If Entry 22 is to be construed as A
involving taxes to be imposed, then Entry 89 would be superfluous.
Entry 41 mentions “Trade and commerce with foreign countries;
import and export across customs frontiers”. If these expressions
are to be interpreted as including duties to be levied in respect of
that trade and commerce, then Entry 83 which is “Duties of
B
customs including export duties” would be wholly redundant.
Entries 43 and 44 relate to incorporation, regulation and winding
up of corporations. Entry 85 provides separately for corporation
tax. Turning to List II, Entries 1 to 44 form one group mentioning
the subjects on which the States could legislate. Entries 45 to 63
in that List form another group, and they deal with taxes. Entry C
18, for example, is “Land” and Entry 45 is “Land revenue”. Entry
23 is “Regulation of mines” and Entry 50 is “Taxes on mineral
rights”. The above analysis — and it is not exhaustive of the
Entries in the Lists — leads to the inference that taxation is not
intended to be comprised in the main subject in which it might on
D
an extended construction be regarded as included, but is treated
as a distinct matter for purposes of legislative competence. And
this distinction is also manifest in the language of Article 248,
clauses (1) and (2) and of Entry 97 in List I of the Constitution.
Construing Entry 42 in the light of the above scheme, it is difficult
to resist the conclusion that the power of Parliament to legislate E
on inter-State trade and commerce under Entry 42 does not include
a power to impose a tax on sales in the course of such trade and
commerce.”
On the above analysis, it was categorically inferred that taxation
was not intended to be comprised in the main subject in which it might, F
on extended construction, be regarded as included but is to be treated as
a distinct matter for the purpose of legislative competence. But while
saying so, in the said case, reliance was placed on Article 286 of the
Constitution and on the point, as to, whether, tax on inter-State sales was
included within Entry 42 in List I, it was held in the negative, particularly,
having regard to Article 286 of the Constitution. Consequently, it was G
opined that the State had power under Entry 54 of List II to impose a tax
on inter-State sales but it would be subject to restrictions included under
Article 286(2) of the Constitution. The aforesaid conclusion was summed
up in paragraph 55 in the following words :
H
558 SUPREME COURT REPORTS [2022] 18 S.C.R.

A “55. To sum up: (1) Entry 54 is successor to Entry 48 in the
Government of India Act, and it would be legitimate to construe it
as including tax on inter State sales, unless there is anything
repugnant to it in the Constitution, and there is none such. (2)
Under the scheme of the entries in the Lists, taxation is regarded
as a distinct matter and is separately set out. (3) Article 286(2)
B
proceeds on the basis that it is the States that have the power to
enact laws imposing tax on inter-State sales. It is a fair inference
to draw from these considerations that under Entry 54 in List II
the States are competent to enact laws imposing tax on inter-
State sales.”
C 76. It was also observed that the said conclusion was a construction
of the statutory provisions having a bearing in the said case, without
reference to the Sixth Amendment to the Constitution which had
proceeded on the view that the States had the power to tax inter-State
sales under Entry 54 of List II. Therefore, the Constitution was amended
D to vest the power to tax inter-State sales with the Centre.
Kesoram Industries Ltd.
77. In this case, the controversy centered around Entries 52, 54
and 97 of List I and Entries 23, 49, 50 and 66 of List II and also the
extended purport of the residuary power of legislation vested in the Union
E of India. The judgment dealt with the imposition of levies on coal, tea,
brick-earth and minor minerals. While dealing with the aforesaid Entries
of List I and List II, reliance was placed on Hoechst Pharmaceuticals
Ltd. (supra) on the interpretation of various Entries in the three Lists.
The amplitude of legislative power under a general Entry vis-à-vis taxation
F Entry was discussed in paragraph 31 which is reproduced as under:
“31. Article 245 of the Constitution is the fountain source of
legislative power. It provides — subject to the provisions of this
Constitution, Parliament may make laws for the whole or any
part of the territory of India, and the legislature of a State may
G make laws for the whole or any part of the State. The legislative
field between Parliament and the legislature of any State is divided
by Article 246 of the Constitution. Parliament has exclusive power
to make laws with respect to any of the matters enumerated in
List I in the Seventh Schedule, called the “Union List”. Subject to
the said power of Parliament, the legislature of any State has
H power to make laws with respect to any of the matters enumerated
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 559
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

in List III, called the “Concurrent List”. Subject to the abovesaid A
two, the legislature of any State has exclusive power to make
laws with respect to any of the matters enumerated in List II,
called the “State List”. Under Article 248 the exclusive power of
Parliament to make laws extends to any matter not enumerated
in the Concurrent List or State List. The power of making any
B
law imposing a tax not mentioned in the Concurrent List or State
List vests in Parliament. This is what is called the residuary power
vesting in Parliament. The principles have been succinctly
summarised and restated by a Bench of three learned Judges of
this Court on a review of the available decision in Hoechst
Pharmaceuticals Ltd. v. State of Bihar [(1983) 4 SCC 45 : 1983 C
SCC (Tax) 248] . They are:
(1) The various entries in the three lists are not “powers” of
legislation but “fields” of legislation. The Constitution effects a
complete separation of the taxing power of the Union and of the
States under Article 246. There is no overlapping anywhere in D
the taxing power and the Constitution gives independent
sources of taxation to the Union and the States.
(2) In spite of the fields of legislation having been demarcated,
the question of repugnancy between law made by Parliament and
a law made by the State Legislature may arise only in cases when E
both the legislations occupy the same field with respect to one of
the matters enumerated in the Concurrent List and a direct conflict
is seen. If there is a repugnancy due to overlapping found between
List II on the one hand and List I and List III on the other, the
State law will be ultra vires and shall have to give way to the
F
Union law.
(3) Taxation is considered to be a distinct matter for purposes
of legislative competence. There is a distinction made between
general subjects of legislation and taxation. The general subjects
of legislation are dealt with in one group of entries and power of
G
taxation in a separate group. The power to tax cannot be deduced
from a general legislative entry as an ancillary power.
(4) The entries in the lists being merely topics or fields of legislation,
they must receive a liberal construction inspired by a broad and
generous spirit and not in a narrow pedantic sense. The words
H
560 SUPREME COURT REPORTS [2022] 18 S.C.R.

A and expressions employed in drafting the entries must be given
the widest-possible interpretation. This is because, to quote V.
Ramaswami, J., the allocation of the subjects to the lists is not by
way of scientific or logical definition but by way of a mere simplex
enumeratio of broad categories. A power to legislate as to the
principal matter specifically mentioned in the entry shall also
B
include within its expanse the legislations touching incidental
and ancillary matters.
(5) Where the legislative competence of the legislature of any
State is questioned on the ground that it encroaches upon the
legislative competence of Parliament to enact a law, the question
C one has to ask is whether the legislation relates to any of the
entries in List I or III. If it does, no further question need be asked
and Parliament’s legislative competence must be upheld. Where
there are three lists containing a large number of entries, there is
bound to be some overlapping among them. In such a situation
D the doctrine of pith and substance has to be applied to determine
as to which entry does a given piece of legislation relate. Once it
is so determined, any incidental trenching on the field reserved to
the other legislature is of no consequence. The court has to look
at the substance of the matter. The doctrine of pith and substance
is sometimes expressed in terms of ascertaining the true character
E of legislation. The name given by the legislature to the legislation
is immaterial. Regard must be had to the enactment as a whole,
to its main objects and to the scope and effect of its provisions.
Incidental and superficial encroachments are to be disregarded.
(6) The doctrine of occupied field applies only when there is a
F clash between the Union and the State Lists within an area common
to both. There the doctrine of pith and substance is to be applied
and if the impugned legislation substantially falls within the power
expressly conferred upon the legislature which enacted it, an
incidental encroaching in the field assigned to another legislature
G is to be ignored. While reading the three lists, List I has priority
over Lists III and II and List III has priority over List II. However,
still, the predominance of the Union List would not prevent
the State Legislature from dealing with any matter within List
II though it may incidentally affect any item in List I.

H (emphasis supplied)
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 561
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

After restating the above principle, it was observed by this Court A
that legislation in the field of tax and economic activities need special
consideration and are to be viewed with larger flexibility rather than
measuring the propositions by an abstract symmetry. It was further
observed that where a power is with the Union to regulate and control,
such power of the Union cannot result in depriving the States of their
B
power to levy tax or fee within its legislative competence without trenching
upon the field of regulation and control. Thus, there is a distinction between
power to regulate and control and power to tax, the two being distinct.
78. While examining the scheme underlying the Seventh Schedule
of the Constitution, reliance was placed on M.P.V. Sundararamier
C
(supra) and it was observed as under:-
“74(3). Taxation is not intended to be comprised in the main subject
in which it might on an extended construction be regarded as
included, but is treated as a distinct matter for purposes of legislative
competence. And this distinction is also manifest in the language
D
of Article 248 clauses (1) and (2) and of Entry 97 in List I of the
Constitution. Under the scheme of the entries in the lists, taxation
is regarded as a distinct matter and is separately set out.”
79. Further, the entries in List I and List II must be construed if
possible, so as to avoid conflict. If there appears to be a conflict between
Entries of List I and List II, what has to be decided is whether there is E
any real conflict. If there is none, the question of application of the non
- obstante clause ‘subject to’ does not arise. If there is a conflict, the
correct approach to the question is to see, whether, it is possible to effect
a reconciliation between the two entries so as to avoid a conflict and
overlapping. It was reiterated that in the event of a dispute arising it F
should be determined by applying the doctrine of pith and substance in
order to find out whether between two Entries or legislative fields assigned
to two different legislatures, the particular 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 Union and a State
G
Legislature, it is the law of the Union that must prevail.
80. Reliance was placed on the words of Sabyasachi Mukharji, J.
(as His Lordship then was), speaking for six out of the seven Judges
constituting the Bench in Synthetics and Chemicals Ltd. (supra).It was
held that under the constitutional scheme of division of powers in the
H
562 SUPREME COURT REPORTS [2022] 18 S.C.R.

A Seventh Schedule, there are separate entries pertaining to taxation and
other laws. A tax cannot be levied under a general entry. It was observed
that the above principles continued to hold the field and have been followed
in cases after cases.
81. Delving further on the subject, it was observed by this Court
B that the power of regulation and control is separate and distinct from the
power of taxation. This was illustrated with reference to several judgments
of this Court, particularly, Hingir - Rampur Coal Co. Ltd. vs. State of
Orissa – [AIR 1961 SC 459] wherein this Court dealt with Entry 54 of
List I and Entry 23 of List II. Reference was also made to the State of
Orissa vs. M.A. Tulloch – [AIR 1964 SC 1284].
C
82. It was further observed with reference to Harbhajan Singh
Dhillon (supra), that Entry 97 of List I conferred the residuary powers
on the Parliament. Article 248 of the Constitution which speaks of
residuary powers of legislation confers exclusive power on Parliament
to make any law with reference to any matter not enumerated in the
D Concurrent List or the State List. But at the same time, it provides
that such a residuary power shall include a 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 the Parliament based on the
E assumption of residuary power.
83. In fact, the judgment in Harbhajan Singh Dhillon (supra)
was by a majority of 4 : 3 to the effect, 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. Thus, there is nothing like an implied power
F to tax. The source of power which does not specifically speak of taxation
cannot be so interpretated by expanding its width as to include therein
the power to tax, by implication or by necessary inference. Reliance
was also placed on Cooley on Taxation to the following effect :
“There is no such thing as taxation by implication. The burden is
G always upon the taxing authority to point to the act of assembly
which authorizes the imposition of the tax claimed.”
Thus, the power to tax is not an incidental power. Although
legislative power includes incidental and subsidiary power under a
particular Entry dealing with a particular subject, the power to impose a
tax is not such a power which could be implied under our Constitution.
H
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 563
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

Therefore, it was held that the power to legislate in respect of inter- A
State trade and commerce (Entry 42 List I) did not carry with it, the
power to tax the sale of goods which are subject of inter-State trade and
commerce, before the insertion of Entry 92A in List I and such power
belonged to the States under Entry 54 in List II subject to Article 286 of
the Constitution.
B
84. Delving further on the distinction between the power to
regulate and control and the power to tax, it was observed by this
Court that there is a significant distinction between the two primary
purposes of legislation. The primary purpose of taxation is to collect
revenue. Power to tax may be exercised for the purpose of regulating
an industry, commerce or any other activity. The purpose of levying C
such tax is the exercise of sovereign power for the purpose of
effectuating regulation although incidentally, the levy may contribute
to the revenue. Taking a leaf from Cooley on his work on taxation, it
was observed that the distinction between a demand of money under
the police power and one made under the power to tax, is not so much D
one of form as of substance.
85. The aforesaid principle was alluded to in Synthetics and
Chemicals Ltd. (supra) by holding that regulation is a necessary
concomitant of the police power of the State which is actually an American
principle but in India it means the ‘sovereign’ power. However, it was E
categorically observed that the power to regulate, develop or control
would not include within its ken a power to levy tax or fee except when
it is only regulatory. Power to tax or levy for augmenting revenue shall
continue to be exercised by Legislature with whom it vests, for instance,
the State Legislature, in spite of regulation or control having been assumed
by another Legislature i.e. the Union. In this case, the question before F
the seven-Judge Bench was the power of the State to legislate on industrial
alcohol as a subject. Entry 8 in List II and Entry 33 in List III came up
for consideration.
86. The aforesaid discussion could be summed up in a nutshell by
culling out the following principles stated in Kesoram Industries Ltd. G
(supra):
(1) In the scheme of the lists in the Seventh Schedule, there exists
a clear distinction between the general subjects of legislation and
heads of taxation. They are separately enumerated.
H
564 SUPREME COURT REPORTS [2022] 18 S.C.R.

A (2) Power of “regulation and control” is separate and distinct
from the power of taxation and so are the two fields for purposes
of legislation. Taxation may be capable of being comprised in the
main subject of general legislative head by placing an extended
construction, but that is not the rule for deciding the appropriate
legislative field for taxation between List I and List II. As the
B
fields of taxation are to be found clearly enumerated in Lists I and
II, there can be no overlapping. There may be overlapping in
fact but there would be no overlapping in law. The subject-matter
of two taxes by reference to the two lists is different. Simply
because the methodology or mechanism adopted for assessment
C and quantification is similar, the two taxes cannot be said to be
overlapping. This is the distinction between the subject of a tax
and the measure of a tax.
(3) The nature of tax levied is different from the measure of
tax. While the subject of tax is clear and well defined, the amount
D of tax is capable of being measured in many ways for the purpose
of quantification. Defining the subject of tax is a simple task;
devising the measure of taxation is a far more complex exercise
and therefore the legislature has to be given much more flexibility
in the latter field. The mechanism and method chosen by the
legislature for quantification of tax is not decisive of the nature
E of tax though it may constitute one relevant factor out of many
for throwing light on determining the general character of the
tax.
(4) The entries in List I and List II must be so construed as to
avoid any conflict. If there is no conflict, an occasion for deriving
F assistance from non obstante clause “subject to” does not arise.
If there is conflict, the correct approach is to find an answer to
three questions step by step as under:
One — Is it still possible to effect reconciliation between two
entries so as to avoid conflict and overlapping?
G
Two — In which entry the impugned legislation falls by finding
out the pith and substance of the legislation?
and
Three — Having determined the field of legislation wherein the
H impugned legislation falls by applying the doctrine of pith and
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 565
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

substance, can an incidental trenching upon another field of A
legislation be ignored?
(5) The primary object and the essential purpose of legislation
must be distinguished from its ultimate or incidental results or
consequences, for determining the character of the levy. A levy
essentially in the nature of a tax and within the power of the State B
Legislature cannot be annulled as unconstitutional merely because
it may have an effect on the price of the commodity.
(6) The heads of taxation are clearly enumerated in Entries 83
to 92-B in List I and Entries 45 to 63 in List II. List III, the
Concurrent List, does not provide for any head of taxation. Entry C
96 in List I, Entry 66 in List II and Entry 47 in List III deal with
fees. The residuary power of legislation in the field of taxation
spelled out by Article 248(2) and Entry 97 in List I can be applied
only to such subjects as are not included in Entries 45 to 63 of
List II.
D
We shall now briefly discuss the Central Act of 1998 and the
impugned Acts of the States of Karnataka and Kerala which have been
made under Entry 40 of List I and Entry 62 of List II respectively.
Acts under consideration :
E
The Lotteries (Regulation) Act, 1998:
87. In view of Entry 40 of List I, the Parliament has enacted the
Lotteries Act, 1998. The said Act is intended to regulate lotteries and to
provide for matters connected therewith and incidental thereto. Section
3 of the said Act prohibits a State Government from organising, conducting
F
or promoting any lottery except subject to the conditions provided under
Section 4 of the Act. Section 4 prescribes the conditions under which a
State Government may organise, conduct or promote a lottery. There
are ten conditions prescribed under Section 4 of the Act. Section 4 is
extracted as under for felicity of reference:
G
“4. Conditions subject to which lotteries may be organised, etc.—
A State Government may organise, conduct or promote a lottery,
subject to the following conditions, namely:—
(a) prizes shall not be offered on any pre-announced number
or on the basis of a single digit;
H
566 SUPREME COURT REPORTS [2022] 18 S.C.R.

A (b) the State Government shall print the lottery tickets bearing
the imprint and logo of the State in such manner that the
authenticity of the lottery ticket is ensured;
(c) the State Government shall sell the tickets either itself or
through distributors or selling agents;
B (d) the proceeds of the sale of lottery tickets shall be credited
into the public account of the State;
(e) the State Government itself shall conduct the draws of all
the lotteries;

C (f) the prize money unclaimed within such time as may be
prescribed by the State Government or not otherwise
distributed, shall become the property of that Government;
(g) the place of draw shall be located within the State
concerned;
D (h) no lottery shall have more than one draw in a week;
(i) the draws of all kinds of lotteries shall be conducted between
such period of the day as may be prescribed by the State
Government;
(j) the number of bumper draws of a lottery shall not be more
E than six in a calendar year;
(k) such other conditions as may be prescribed by the Central
Government.”
88. The Central Government may also prescribe any other
F condition. Section 5 deals with prohibition of sale of ticket in a State
which means that a State Government may, within the State, prohibit the
sale of tickets of a lottery organised, conducted or promoted by every
other State. The Central Government can also by an order published in
the Official Gazette, prohibit lottery organised, conducted or promoted
in contravention of the provisions of Section 4 of the said Act or where
G tickets are sold in a contravention of the provisions of Section 5 thereof.
Penalty clause is in Section 7. Section 10 of the said Act enables the
Central Government to give directions to State Governments as to carrying
into execution in the State, of any of the provisions of the said Act or of
any rule or order made thereunder.The Central Government has the
H power to make rules under the saidAct in terms of Section 11. Section
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 567
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

12 of the said Act enables the State Government to make rules to carry A
out the provisions of the said Act.
89. A schematic reading of the said Lotteries Regulation Act clearly
indicates that the Parliament has enacted the same having regard to
Entry 40 of List I of the Seventh Schedule of the Constitution. The 1998
Act deals exclusively with conduct of lotteries by a State Government B
subject to terms and conditions prescribed in Section 4 of the 1998 Act.
The said Act does not deal with conduct of lotteries by entities other
than Government of India or Government of State. Hence, regulation of
the organisation, conduct and promotion of any lottery by the Government
of India or State Government is made by the Parliament under the
C
provisions of the 1998 Act. The said Act has no provision regarding
taxation.
The Karnataka Tax on Lotteries Act, 2004
90. The Karnataka Tax on Lotteries Act, 2004is an enactment to
levy tax on lottery scheme as per Section 6 of the said Act. The tax is D
levied at the following rates namely: (a) Rupees one lakh and fifty
thousand for every bumper draw; and (b) Rupees one lakh in respect of
any other draw.
91. The said tax is to be paid by every promoter. The Karnataka
Act, 2004 defines the expression ‘lottery’ in Sub-Section 4 of Section 2 E
to mean a scheme, in whatever form and whatever name called for
distribution of prizes by lot or chance to those persons participating in
the chance of a prize by purchasing tickets organised by the Government
of India or the Government of a State or a Union Territory or any other
country having bilateral agreement or treaty with the Government of
India. The definition of the expression ‘lottery’ would indicate that the F
object and purpose is of levying the tax on a lottery scheme is only when
the lottery scheme is organised by the Government of India or the
Government of a State or a Union Territory or any other country having
bilateral agreement or treaty with the Government of India. Thus, this
Act does not levy any tax on lotteries conducted by any private entities. G
Sub-Section 5 of Section 2 defines a ‘promoter’ to be the Government
of India or a Government of a State or a Union Territory or any country
organising, 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
H
568 SUPREME COURT REPORTS [2022] 18 S.C.R.

A selling lottery tickets in the country or a State. The Karnataka Act, 2004
enables payment of tax in advance by the registered promoter. Section 8
of the Act deals with registration of promoters and sellers.
92. The Karnataka Act, 2004 is a comprehensive legislation on
levy and collection of tax on lotteries (gambling). In fact, the preamble
B of the Act itself states that the Act is to provide for levy and collection of
tax on lottery (gambling). Thus, in the Karnataka Act, 2004, the
Legislature has clearly indicated that the expression lottery means
gambling.
93. The Act seeks to provide for all matters incidental and ancillary
C to the levy of taxation, including provisions for filing return, assessment
thereof and schedule for payment of tax in advance. Additionally, the
said Act also provides for a machinery to effect recoveries of tax and/or
penalties from the assessee. Chapter VI of the Act provides for the
right of an assessee to prefer an appeal; and the powers of the
Commissioner and Joint Commissioner to initiate revisional proceedings
D in relation to any assessment made or pending under the Act.
94. Section 20 of the Act authorizes certain officers of the State
Government to conduct inspection of documents and searches, and effect
seizure of accounts or documents pertinent to the assessment under the
Act.
E
95. Chapter VII of the Karnataka Act, 2004 prescribes specific
penalties for contravention of various conditions of the Act such as penalty
for failure on the part of a promoter to register, keep records, file statement
of returns etc.

F 96. The Karnataka Tax on Lotteries Rules, 2003 (hereinafter
referred to as ‘Karnataka Lottery Rules, 2003’) were made pursuant to
Section 37 of the Karnataka Tax on Lotteries, Ordinance, 2003, which
preceded the Karnataka Act, 2004.
Kerala Tax on Paper Lotteries Act, 2005
G 97. The Kerala Act, 2005 is an enactment which provides for the
levy and collection of tax on the conduct of paper lotteries within the
State of Kerala, at such rates as specified in Section 6 of the Act. The
Act provides for the following two rates, applicable based on the nature
of the draw: (a) Ten lakh rupees for every bumper draw; (b) Two lakh
fifty thousand rupees in respect of any other draw.
H
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 569
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

98. The said tax is to be paid by every ‘promoter.’ The terms A
‘promoter’ and ‘lottery’ have been defined in identical terms as provided
under the Karnataka Act of 2004. The Kerala Tax on Paper Lotteries
Act, 2005 does not seek to tax the conduct of online lotteries, but only
paper lotteries conducted within the State of Kerala. The preamble of
the said Act states that it is an Act to provide for the levy and collection
B
of tax on the conduct of paper lotteries in the State of Kerala.
99. Section 7 of the said Act requires promoters to get registered
under the Act on payment of a fee and deposit of security. However, the
Act does not require registration of persons who ordinarily sell lottery
tickets in retail. ‘Promoter’ has been defined to include the Government
of India or a Government of a State or a Union Territory or any country C
organising, conducting or promoting a lottery, within the State of Kerala,
or any person or entity appointed by the said Government or Country in
this behalf. Therefore, the Act only provides for taxation of lotteries
conducted within the State of Kerala, by or on behalf of the Government
of India, the Government of any State or of a foreign Country and not D
for taxation on lotteries organised by private entities. Section 11 of the
Kerala Act, 2005 provides for payment of tax on every draw, in advance.
100. The Kerala Act, 2005 is a comprehensive legislation and
also provides for all matters incidental to the levy and collection of tax
on paper lotteries such as, the procedures for assessment of tax due, the E
right of the assessee to prefer appeals, powers of the tax authorities to
conduct search and make seizure, penal provisions to be resorted to for
default in payment of tax prescribed under the said Act. The legislation
also empowers the State Government to enact Rules to give effect to
any of the provisions of the Act.
F
Parameters of Taxation :
101. A legislative enactment which provides for the imposition of
a tax must specify the following parameters of taxation:
i) The taxable event which forms the basis of levy, also
referred to as ‘subject’ of a tax; G
ii) The measure of the tax;
iii) The rate/s of taxation;
iv) The incidence of the tax,
H
570 SUPREME COURT REPORTS [2022] 18 S.C.R.

A 102. The said parameters are each distinct and must not be
conflated with the others. The components of tax, as stated above have
been characterized in Govind Saran Ganga Saran (Supra). In the said
case, it was also laid down that a legislative scheme which seeks to
impose a tax, ought to define each of the aforestated components with
certainty and precision. The observations of Chief Justice Pathak may
B
be extracted as under:
“6. The components which enter into the concept of a tax are
well known. The first is the character of the imposition known by
its nature which prescribes the taxable event attracting the levy,
the second is a clear indication of the person on whom the levy is
C imposed and who is obliged to pay the tax, the third is the rate at
which the tax is imposed, and the fourth is the measure or value
to which the rate will be applied for computing the tax liability. If
those components are not clearly and definitely ascertainable, it is
difficult to say that the levy exists in point of law . Any uncertainty
D or vagueness in the legislative scheme defining any of those
components of the levy will be fatal to its validity.”
103. The above parameters may be identified in the impugned
Acts under consideration, as follows:
(i) In the context of the tax sought to be imposed by the
E impugned Acts, the basis of levy is the conduct of lotteries
within the State of Karnataka or Kerala. In other words,
the subject of taxation is the conduct of lottery schemes,
by the Government of India or the Government of other
States, within the State of Kerala or Karnataka. While it
F has rightly been stated by the learned counsel appearing on
behalf of the Respondents that the conduct of lotteries
involves a host of events such as formulation and notification
of scheme of lotteries, printing, transportation and sale of
lottery tickets etc., all these events constituting the conduct
of the lotteries are ultimately for the participation of persons,
G within the State of Karnataka or Kerala. Therefore, the
subject of tax is the conduct of lottery schemes, within the
State of Karnataka or Kerala, which is enabled by the
propensity of persons to participate in the lottery schemes.
(ii) The measure of taxation in the instant case is the
H ‘draw.’ The impugned legislations contemplate two kinds
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 571
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

of draws, namely bumper draw and draw other than a A
bumper draw.
(iii) The rate of tax, is a dependent variable and is to be
determined based on the measure. In the instant case, the
rate of tax under the Karnataka Act, 2005 is Rupees One
Lakh and fifty thousand in respect of a bumper draw and B
Rupees one lakh in respect of any other draw. Similarly, in
the Kerala Act, 2005, the rate of tax is Rupees ten lakhs in
respect of a bumper draw and Rupees two lakhs and fifty
thousand in respect of any other draw.
(iv) The incidence of the tax is on the promoters of the C
lotteries, i.e. on the Government of India or a Government
of a State or a Union Territory or any Country organizing,
conducting or promoting a lottery, within the State of
Karnataka or Kerala, or any person or entity appointed by
the said Government or Country in this behalf. The impugned
Acts require registration of promoters and all provisions D
requiring filing of the returns of draws and payment of tax,
are to operate in relation to promoters. Therefore, the
incidence of the tax, falls on the promoters of the lotteries.
104. The expression ‘betting and gambling’ finds a mention in
Entry 34 of List II of the Seventh Schedule of the Constitution and taxes E
on, interalia, betting and gambling are leviable having regard to Entry
62 of List II of the Seventh Schedule. Thus, the activity of betting and
gambling and taxes on betting and gambling are subjects falling within
List II of the Seventh Schedule i.e. they are State subjects. If conduct of
lotteries is held to come within the scope of the expression ‘betting and F
gambling’ then the regulation and control of the said activity as well as
the taxation on lotteries are squarely within the contours of the legislative
powers of the State. However, only lotteries organised by the Government
of India or the Government of a State, even though, they come within
the scope of the expression ‘betting and gambling’ have been carved out
of the Entry 34 of List II dealing with betting and gambling inasmuch as G
Entry 40 of List I (Union List) deals with lotteries organised by the
Government of India or the Government of a State. This implies that
conduct of lotteries by the Government of India or the Government of a
State, even though, is betting and gambling within the meaning of Entry
34 and Entry 62 of List II, nevertheless, those Entries are denuded H
572 SUPREME COURT REPORTS [2022] 18 S.C.R.

A inasmuch as the State Legislature has no legislative powers to pass any
law on the subject lotteries organised by the Government of India or the
Government of a State. If such is the simplistic interpretation to be given,
the matter would rest. However, that is not so.
Meaning of ‘betting and gambling’ and ‘lotteries’ :
B 105. Having perused the impugned Acts and identified the
parameters of taxation in the context of the said Acts, we shall now
discuss the meanings of betting and gambling and,in particular, lottery as
found in Entries 34 and 62 of List II and Entry 40 of List I.
A. Dictionary meaning :
C
(i) Black’s Law Dictionary defines ‘gambling’ to mean:
“The act of risking something valuable, especially money
for a chance to win a prize.”
(ii) Similarly, in Advanced Law Lexicon, P. Ramanatha Aiyar
D (6th Edition) at page 612‘betting and gambling’ has been described as
follows:
“Putting a stake on something of value, particularly money
with consciousness of risk and hope of gain on the outcome
of a game or a contest, whose result may be determined by
E chance or accident, or on the likelihood of anything occurring
or not occurring.”
(iii) In Words and Phrases (Permanent Edition) Vol. 25-A at
page 439 a ‘lottery’ has been defined to mean ‘a species of gambling.’
At page 444, it has been stated as follows:
F
“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 for the distribution of prizes by chance.”
G
(iv) In Advanced Law Lexicon, P. Ramanatha Aiyar (1997 Edition)
‘Lottery’ has been defined as follows:
“Scheme for disposal or distribution of property by chance.
The term ‘lottery’ has no technical meaning in the law distinct
from its popular signification.”
H
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 573
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

(v) Similarly, in Black’s Law Dictionary (6th Edn.) at p. 947 the A
meaning of ‘lottery’ has been pithily given as under:
“A chance for a prize for a price.”
(vi) The Concise Oxford English Dictionary [Oxford University
Press, 11 Edn., 2004] at p. 844, defines the term “lottery” as follows:
B
“Lottery a means of raising money by selling numbered
tickets and giving prizes to the holders of numbers drawn
at random – something whose success is governed by
chance.”
(vii) The Webster’s New American College Dictionary (1981) C
defines as:
“A method of selling numbered tickets and awarding prizes
to the holders of certain numbers drawn by lot.”
106. From the above Dictionary meanings what emerges is that
‘lottery’ is one of the many gambling schemes. That ‘gambling’ is the D
genus of which a species is ‘lottery’. It is evident that ‘lotteries’ and
‘gambling’ activities, to be termed as such, must inherently have an
element of ‘chance’ in the manner in which the result thereof is
determined. That the species of ‘lottery’ may be placed in the genus of
‘betting and gambling’ and more specifically under the ambit of ‘gambling’
E
because of the ‘gambling spirit’ which is a necessary element of ‘lottery’.
The expression ‘to take a chance’ is itself synonymous to a gamble.
Therefore, it may be concluded that lottery is one such activity which
requires a participant to take a chance or to gamble. Any form of contest
for a prize that does not fall within the definition of either betting, gaming
or a lottery is defined as a ‘prize competition’ which is also subject to F
legal control.
B. Some Recent Writings :
(i) According to the House of Lords Select Committee Report on
‘the Social and Economic Impact of the Gambling Industry’ (Report of
Session 2019-21), gambling is a general expression which can include G
different types of gambling viz., betting, gaming and lotteries.
Betting is defined as making or accepting a bet on:
(i) the outcome of a race, competition or other event or
process; H
574 SUPREME COURT REPORTS [2022] 18 S.C.R.

A (ii) the likelihood of anything occurring or not occurring; or
(iii) whether anything is or is not true.
Gaming is defined as ‘playing a game of chance for a prize’. A
game of chance includes:
B (i) A game that involves both an element of chance and an
element of skill;
(ii) A game that involves an element of chance that can be
eliminated by superlative skill; and
(iii) A game that is presented as involving an element of
C chance, but
(iv) Does not include a sport.
The Report however states that the expression ‘gaming’ may
not include video gaming and social gaming as such but is used in a
statutory sense viz., section 6 of Gambling Act, 2005.
D
Lotteries is defined as a type of gambling that has three essential
elements :
(i) Payment is required to participate;
(ii) One or more prizes are awarded; and
E
(iii) Those prizes are awarded by chance.
In England, the Gambling Act, 2005 has been enforced as a
comprehensive legislation with effect from 1st September, 2007 to include
betting, gaming and lotteries. While the Gambling Act, 2005 defines each
F of the forms of gambling, the underlying concept ‘game’ and ‘bet’ are
not defined.
(ii) Kent R. Grote and Victor A. Matheson (Department of
Economics and Business, Lake Forest College and Department of
Economics, College of the Holy Cross, Worcester respectively) in their
Article ‘The Economics of Lotteries: A Survey of the Literature’,
G
published in August, 2011, have stated that lotteries represent one of the
oldest and most common forms of gambling around the world. That
lotteries involve the sale by an organising body, typically the government
but also occasionally private businesses or charities, of a ticket, giving
the possessor, a potential monetary reward. Lotteries differ from casinos
H in that lottery ticket sales generally do not take place at a location
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 575
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

specifically set aside for gambling, and modern lotteries are usually A
operated by governments instead of private firms. It is further observed
that lotteries are of particular interest to scholars for a variety of reasons.
First, they represent an important source of government revenue in many
States and countries, so they are of interest to public finance economists.
Second, lotteries provide researchers interested in micro-economic
B
theory and consumer behavior with a type of experimental lab that allows
economists to explore these topics.
107. According to these learned authors, lotteries have a revenue
potential and the revenue mechanism, is explicitly stated, the goal of
lottery organisers and there are ways in which variations in product
variety, lottery structure and payout rates could be adjusted to increase C
revenue. If a State finds that its residents are purchasing lottery tickets
from other States that have adopted lotteries, this may increase the
likelihood of that State to introduce its own lotteries.
108. The relevant judgments cited at the Bar on lottery scheme
and its essential features shall be considered as under: D

(a) In RMD Chamarbaugwala (supra), this Court examined
the validity of the Bombay Lotteries and Prize Competitions
Control Act, 1948, which sought to tax the promoters of
prize competitions. In that context, this Court discussed
whether prize competitions as defined in the legislation E
impugned therein were in the nature of gambling activities.
This Court examined the nature of the prize competitions
and made observations as to which of them ought to be
included under the category of ‘activities of gambling
nature’. It was held that prize competitions which require F
participants to guess the solution prepared beforehand or
which determine the solution by lot were of gambling nature.
In a more general vein, it was highlighted that gambling
activities, in their very nature include any competition
wherein success does not depend to a substantial extent on
skill of the participant, but on an element of chance. As G
regards those competitions in which prizes are offered for
forecasts of the results either of a future event or an event
that has occurred in the past for which the result is unknown,
this Court held that the said category of competitions were
also of ‘gambling’ nature. This Court concluded that the H
576 SUPREME COURT REPORTS [2022] 18 S.C.R.

A activity being conducted by the respondent-promoter therein
was a lottery and such activity could be regarded as
gambling inasmuch as it was not a competition in which
skill, knowledge and judgment were in real and effective
play.
B (b) In RMDC vs. State of Mysore (supra), the challenge was
to the constitutionality of the Mysore Lotteries and Prize
Competitions Control and Tax Act, 1951 (‘Mysore Act’ for
short) passed by the Mysore Legislature which came into
force from 21st June, 1951 and the Rules made thereunder,
which came into force on 1st February, 1952. Earlier to that,
C the Bombay High Court had observed that the amendment
made to the Bombay Lotteries and Prize Competition Control
and Tax Act, 1948 (‘Bombay Act’ for short) was
unconstitutional and that the taxes imposed under the
provisions of the Bombay Act were hit by Article 301 of
D the Constitution. The result of that judgment was that though
the prize competitions could be controlled by the State within
their respective borders, their ramifications beyond those
borders could only be dealt with by any action under Article
252(1) of the Constitution. It was for that reason that the
States of Andhra Pradesh, Bombay, Madras, Uttar Pradesh,
E Hyderabad, Madhya Bharat, Pepsu and Saurashtra passed
resolutions under Article 252(1) of the Constitution
authorizing Parliament to legislate for the control and
regulation of prize competitions and in pursuance thereof,
the Parliament passed the Prize Competitions Act, 1955
F (Act 42 of 1955) (Central Act) which came into force on
1st April, 1956. On 24 th February, 1956, the Mysore
Legislature passed a resolution adopting the said Central
Act. Petitions were filed under Article 32 of the Constitution
before this Court challenging the validity of the Central Act
but the same were dismissed vide R.M.D.C. vs. Union of
G India (supra).
Thereafter, certain amendments were made to the
Mysore Act, as originally passed in 1951. The Mysore
Amending Act was challenged in the High Court of Mysore
by a petition filed under Article 226 which was dismissed
H and against that judgment and order, the appeal was brought
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 577
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

before this Court pursuant to a certificate issued by the A
High Court under Article 132(1) of the Constitution. The
challenge to the constitutionality of the Mysore Amending
Act was, inter alia, on the ground that the Mysore
Legislature, by adopting the Central Act, was no longer
competent to pass any law in regard to prize competitions
B
because the whole matter including the power of taxation
was surrendered in favour of the Parliament.
While considering the resolutions passed by various
States, the question that arose for consideration of this Court
was whether the resolutions as passed and particularly the
words “control and regulation of prize puzzle C
competitions and all other matters ancillary thereto” had
the effect of surrendering the whole subject of prize
competitions to the Parliament i.e., every matter and power
connected therewith including the power to tax. This Court
held that the resolutions passed by the States vis-à-vis Entry D
34 of List II as per Article 252 of the Constitution, did not
take away the power of the State to impose tax under Entry
62 of List II and the said power could not have been said to
have been surrendered. That by passing the resolutions,
the States did not surrender their power of taxation and
neither was Clause (2) of Article 252 of the Constitution E
violated by the amendment of the Mysore Act. That the
tax imposed under the Mysore Act was in exercise of the
powers which the legislature possessed of imposing tax
under Entry 62 of List II.
In RMDC vs. State of Mysore (supra), after referring F
to R.M.D. Chamarbaugwala (supra), it was categorically
observed as follows:-
“The fact that regulatory provisions have been
enacted to control gambling by issuing licences and
by imposing taxes does not in any way alter the nature G
of gambling which is inherently vicious and
pernicious.”
Considering Entries 34 and 62 of List II, it was observed
that the subject of ‘betting gambling’ given in Entry 34 of
List II and the taxes on ‘betting gambling’ as given in Entry H
578 SUPREME COURT REPORTS [2022] 18 S.C.R.

A 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 passed by the States, the power to tax under
Entry 62 of List II, which is a separate head, cannot be said
to have been surrendered. The observations of Das, C.J. in
B
R.M.D. Chamarbaugwala (supra) were reiterated as
under:-
“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
C
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
D 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.”
(c) In H. Anraj (supra), the petitioner therein questioned the
E ban sought to be imposed by the Government of
Maharashtra on sale within the State of Maharashtra of
tickets of lotteries conducted by the Government of other
States. While considering the said question, it was observed
that Entry 40 of List I deals with lotteries organised by the
Government of India or the Government of State while Entry
F
34 of List II deals with ‘betting and gambling’. That the
expression ‘betting and gambling’ includes and has always
been understood to have included conduct of lotteries. But,
the subject, ‘Lotteries organised by the Government of India
or the Government of State’ has been taken out from the
G legislative field comprised in the expression ‘betting and
gambling’ and is reserved to be dealt with by the Parliament.
Since the subject was within the exclusive legislative
competence of Parliament in view of Article 246(1) and
(3), no legislature of a State can make laws touching lotteries
organised by the Government of India or the Government
H
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 579
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

of a State. In our view, in the aforesaid case, the scope of A
Entry 62 of List II in the context of Entry 34 of List II and
Entry 40 of List I did not come up for consideration.
(d) In H. Anraj vs. Government of Tamil Nadu - [(1986) 1
SCC 414] (For short, “Anraj II”), the amendment
introduced to the Tamil Nadu General Sales Tax Act, 1959, B
with effect from 28th January, 1984, whereby lottery tickets
were subjected to sales tax, was assailed before this Court
primarily on the ground that the Tamil Nadu State Legislature
lacked legislative competence to enact such amendment.
This Court considered the question as to whether sales tax
could be levied by a State Legislature on the sale of lottery C
tickets within its territory, based on the power vested with
it under Entry 54 of List II which at the time pertained to
‘taxes on the sale or purchase of goods other than
newspapers.’
In that background, this Court undertook an analysis of D
the nature of lottery tickets, with a view to determine
whether they may be construed to be ‘goods’ as defined
under the Sale of Goods Act, the sale of which ‘goods’
may be subjected to sales tax. This Court concluded that
lottery tickets were ‘goods’ inasmuch as they carried with E
them the entitlement to participate in a draw. That when
lottery tickets were sold, a beneficial interest in movable
property of incorporeal or intangible character, was being
transferred. It was held that when a lottery ticket is
purchased, it carried with it a right to participate in a draw,
and therefore, sales tax may be imposed on the same, in a F
similar manner as is imposed when any other ‘dealer’s
merchandise’ which is bought and sold in the market, is
transferred.
(e) In M/s Suman Enterprises and Others (supra) an
executive order dated 6th October, 1989, was issued by the G
State of Tamil Nadu prohibiting the sale of lottery tickets of
other States. The said Government order categorized
lotteries as (a) Lotteries organized by the Government of
India; (b) Lotteries organized by the Government of Tamil
Nadu; (c) Lotteries organized by the other State H
580 SUPREME COURT REPORTS [2022] 18 S.C.R.

A Governments; (d) Private lotteries authorized by
Government of Tamil Nadu; and (e) Private lotteries
authorized by other Governments but not authorized by this
Government. The Government order stated that sale of
lottery tickets of Government of Tamil Nadu and lotteries
organized by the Government of India or other State
B
Governments alone would be permitted within the said State.
This Court observed that a lottery ‘organised’ by a State
would require certain basic and essential concomitants to
be satisfied as members of the public when investing their
money in such a lottery proceed on a trust and on certain
C assumptions as to the genuineness, bona fides, safety,
security, the rectitude of administration etc. associated with
governmental functioning. As to the meaning of the said
organized lottery and the requirements thereof are
concerned, it was observed as under:-
D “The first of those requirements is that the tickets
which bear the imprint and logo of the State must be
printed by or directly at the instance of the State
Government so as to ensure their authenticity and
genuineness and further to ensure that any possibility
of duplication of the tickets and sale of fake tickets
E is provided against and rendered impossible. Secondly,
the State itself must sell the tickets though, if it thinks
necessary or proper so to do, through a sole
distributor or selling agent or several agents or
distributors under terms and conditions regulated by
F the agreement reached between the parties. The sale
proceeds of the tickets either sold in retail or wholesale
shall be credited to the funds of the Government.
Thirdly, the draws for selecting the prize-winning
tickets must be conducted by the State itself,
irrespective of the size of the prize money. Fourthly,
G if any prize money is unclaimed or is otherwise not
distributed by way of prize, it must revert to and
become the property of the State Government.
These, prima facie, appear to us to be the minimal
characteristics of a lottery which can claim to be
H ‘organised’ by the State.”
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 581
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

The aforesaid were said to be a minimal criteria which A
rendered a lottery to be eligible to be called ‘organised’ by
a State. Thus, a distinction was made by this Court between
the said organized lottery and a lottery which is authorised
by the State. Further it was observed that the Government
order of Tamil Nadu impugned therein was construed to
B
apply to lotteries organized by the States in terms of the
Entry 40 of List I, while Entry 34 of List II dealt with ‘betting
and gambling’.
(f) The nature and character of the lotteries was again
deliberated upon in B.R. Enterprises (supra) wherein it C
was held that lotteries are a form of gambling. However,
it was contended that State lottery, if it is gambling, would
lose its character as such. While considering the said issue,
reliance was placed by this Court on R.M.D.
Chamarbaugwala (supra), to hold that gambling activities
are in their very nature and essence, res extra D
commercium. That, even if lotteries were permitted under
the regulating power of the State, it could not be given
status of ‘Trade and Commerce’ as understood in common
parlance. The ingredients of a contract of lottery tickets
were considered and reference was made to Anraj II E
(supra), wherein it had been held that sale of lottery tickets
was transfer of ‘Goods’ and hence liable for sales tax, by
observing thus:-
“49. ….”A sale of a lottery ticket confers on the
purchaser thereof two rights (a) a right to participate F
in the draw and (b) a right to claim a prize contingent
upon his being successful in the draw. Both would
be beneficial interests in moveable property. Lottery
tickets, not as physical articles, but as slips of paper
or memoranda evidence not one but both these
G
beneficial interests in moveable property which are
capable of being transferred, assigned or sold and on
their transfer, assignment or sale both these beneficial
interests are made over to the purchaser for a price.
***
H
582 SUPREME COURT REPORTS [2022] 18 S.C.R.

A The right to participate in the draw under a lottery
ticket remains a valuable right till the draw takes place
and it is for this reason that licensed agents or
wholesalers or dealers of such tickets are enabled to
effect sales thereof till the draw actually takes place
and as such till then the lottery tickets constitute their
B
stock-in-trade and therefore a merchandise and
goods, capable of being bought or sold in the market.”
However, it was also noted that in Anraj II (supra)
neither was there any issue nor any contest as to whether
the sale of such lottery tickets would be ‘Trade and
C
Commerce’. The said decision proceeded as if it was ‘Trade
and Commerce’ within the meaning of Articles 301 to 304
of the Constitution in Chapter XIII thereof. Hence, the
nature of the transaction involved in the sale of lottery tickets
was examined and after referring to various dictionaries
D and other authorities, it was observed that there are three
ingredients in the sale of lottery tickets, namely, (i) prize,
(ii) chance, and (iii) consideration. So, when a person
purchases a lottery ticket, he purchases it for receiving a
prize, which is by chance and the consideration is the price
of the ticket. The holder of such a ticket knows that the
E
consideration which he has paid may be for receiving
nothing. However, there may be a few who are lucky to
receive the prize which is just by chance.
While noting that Entry 62 of List II refers to taxes on
‘betting and gambling’ which inherently includes gambling,
F
the question whether State lotteries (gambling) could still
qualify to be ‘Trade and Commerce’ within the meaning of
Chapter XIII of the Constitution was considered. Noting
that, there had been a distinction made under the
Government of India Act, 1935 between State lotteries and
G other forms of lotteries which have been placed in different
Lists and the same pattern had been followed under the
Constitution, this Court made a distinction between
‘gambling’ and ‘trade’ and observed that gambling inherently
involved an element of chance, with no skill, while trade
involved skills, with no chance. That even though the State
H
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 583
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

may conduct lotteries, the element of chance remains, with A
no skill involved and even the organisation and conduct of
the lotteries by the State Government are within the
boundaries of gambling. That the only purpose of having
stringent measures vis-à-vis lotteries being conducted by
the State was to inculcate faith in the participants of such
B
lottery being conducted fairly with no possibility of fraud or
misappropriation and deceit and assure the hopeful
recipients of high prizes that all is fair and safe. That the
objectwas to assure the participants that the proceeds from
the sale of lottery tickets are credited to the public accounts
of the State and would not be in the hands of any individual C
group or association and thus to bring about a transparency
in the organisation of the lottery by the State, subject to the
regulation. Even then, the activity of conduct of the lottery
would remain in the realm of gambling. With respect to the
nature of lotteries conducted by a State vis-à-vis lotteries
D
conducted by any individual group or association, this Court
further observed as follows:-
“In this regard, there is no difference between
lotteries under Entry 34 List II and a lottery organised
by the State under Entry 40 List I. When character
of both the State organised lotteries and other E
lotteries remains the same, by merely placing the
apparelof the State with authority of law, would not
make any difference; it remains gambling as element
of chance persists with no element of skill. Even other
lotteries under Entry 34 List II could only be run under F
the authority of the State or the law of the State. The
only difference is in one case, authority is that of
State and in the other, Parliament.”
This Court further held that even a lottery, though not
organised by the State, but authorized by the State, has a G
sanction in law. That gambling may be taxed and may be
authorized for specified purpose, but it would not attain the
status of trade like other trades and become res
commercium. As regards the applicability of the R.M.D.
Chamarbaugwala (supra) case to State lotteries this Court
observed as follows:- H
584 SUPREME COURT REPORTS [2022] 18 S.C.R.

A “……..no gambling could be commercium, hence in
our considered opinion the principle of RMDC case
would equally be applicable even to the State
organised lottery. In no uncertain terms the said
decision recorded that the Constitution makers could
never have conceived to give protection to gambling
B
either under Article 19(1)(g) or it as a trade under
Article 301 of the Constitution.”
Ultimately, in paragraph 73 of the said judgment, it was
observed that sale of lottery tickets organised by the State
could not be construed to be ‘trade and commerce’ and
C even if it could be so construed, it cannot be raised to the
status of ‘trade and commerce’ as understood in common
parlance or ‘trade and commerce’ as used in Article 301.
Thus, it was concluded that lotteries organised by the State
are also in the nature of gambling as per the principles laid
D down in RMDC vs. State of Mysore (supra). Therefore,
the said principles would be equally applicable to State
lotteries.
(g) In Sunrise Associates vs. Government of NCT of Delhi -
[(2000) 10 SCC 420], a decision rendered by the High
E Court of Delhi, following the ratio laid down in Anraj II,
was challenged before this Court on the principal ground
that the judgment in Anraj II required reconsideration. This
Court noted that Anraj II proceeded on the view that
purchase of a lottery ticket carried with it the right to
participate in a draw. It however, had not taken into account
F that the transaction of sale of lottery tickets involved two
elements which were inextricably linked to each other,
namely, (i) the right to participate in a draw; and (ii) the
right to win the prize, dependent on chance. It was held in
light of the second of the two elements, that the sale of a
G lottery ticket may, in fact, be a transfer of a chose in action
and not transfer of a good. Having regard to the said
ambiguity as to the nature of right being transferred when
a lottery ticket is sold, the matter was referred to a Bench
of five Judges, who clarified the law on the point in Sunrise
Associates vs. Government of NCT of Delhi - [(2006) 5
H SCC 603]
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 585
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

(h) In Sunrise Associates vs. Government of NCT of Delhi - A
[(2006) 5 SCC 603], which is a judgment of a Constitution
Bench of this Court authored by Ruma Pal, J., the question,
whether, sales tax could be levied by a State on the sale of
lottery tickets as considered in H. Anraj II (supra) was
reconsidered. This Court came to the conclusion about the
B
transfer of lottery tickets in the following manner:-
“14. The Court in H. Anraj [(1986) 1 SCC 414 :
1986 SCC (Tax) 190] came to the conclusion that
the transfer of a lottery ticket upon consideration paid
by the purchaser was not a mere contract creating
an obligation or right in personam between the C
parties, but was in the nature of a grant. The Court
noted the various definitions of the word “lottery” in
dictionaries and authoritative text books and decisions
of the courts and held that a lottery was composed
of three essential elements, namely, (1) chance, (2) D
consideration; and (3) prize. As we have mentioned
earlier, according to the learned Judges a sale of a
lottery ticket conferred on the purchaser two rights
viz. (a) the right to participate in the draw, and (b)
the right to claim a prize contingent upon the
purchaser being successful in the draw. Both were E
held to be beneficial interests in movable property,
the former in praesenti, the latter in futuro
depending on the contingency.”
Ultimately, in paragraphs 41 and 44, the Constitution
Bench observed as under :- F

“41. A lottery ticket has no value in itself. It is a
mere piece of paper. Its value lies in the fact that it
represents a chance or a right to a conditional benefit
of winning a prize of a greater value than the
consideration paid for the transfer of that chance. It G
is nothing more than a token or evidence of this right.
The Court in H. Anraj [(1986) 1 SCC 414 : 1986
SCC (Tax) 190] , as we have seen, held that a lottery
ticket is a slip of paper or memoranda evidencing the
transfer of certain rights. We agree. H
586 SUPREME COURT REPORTS [2022] 18 S.C.R.

A 42. …..
43 …..
44. The question is, what is this right which the ticket
represents? There can be no doubt that on purchasing
a lottery ticket, the purchaser would have a claim to
B a conditional interest in the prize money which is not
in the purchaser’s possession. The right would fall
squarely within the definition of an actionable claim
and would therefore be excluded from the definition
of “goods” under the Sale of Goods Act and the sales
C tax statutes. This was also accepted in H.
Anraj [(1986) 1 SCC 414 : 1986 SCC (Tax) 190]
when the Court said that to the extent that the sale
of a lottery ticket involved a transfer of the right to
claim a prize depending on chance, it was an
assignment of an actionable claim. Significantly
D in B.R. Enterprises v. State of U.P. [(1999) 9 SCC
700] construing H. Anraj [(1986) 1 SCC 414 : 1986
SCC (Tax) 190] the Court said: (SCC p. 746, para
52)
“52. So, we find three ingredients in the sale of
E lottery tickets, namely, (i) prize, (ii) chance, and
(iii) consideration. So, when one purchases a
lottery ticket, he purchases for a prize, which is
by chance and the consideration is the price of
the ticket.”
F Thus, the Constitution Bench held that the lottery ticket
would represent an actionable claim and hence is excluded
from the definition of ‘Goods’ under the Sale of Goods Act
and the sales tax statutes.
It was further observed that the distinction drawn in H.
G Anraj II (supra) between the chance to win and the right
to participate in the draw was unwarranted because 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 inseparable
part of the chance to win and not a different right, and
H
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 587
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

therefore, the separation between the two was not right. In A
other words, a draw without a chance to win is meaningless;
and one cannot claim a prize without participating in a draw.
In fact, the transfer of the chance to win assumes
participation in the draw. The consideration is paid for the
chance to win after participating in the draw and not merely
B
for the right to participate. The right to participate being an
inseparable part of the chance to win, is therefore part of
an actionable claim. It was also observed that the right to
participate and the chance to win are both rightsin futuro.
It was thus emphasized that there is no sale of goods within
the meaning of sales tax statutes when the right to participate C
in a draw is transferred by sale of a lottery ticket and that
the object of right to participate would be to win a prize.
Hence, the right to participate in a lottery is an actionable
claim or what is called as chose in action. In view of the
above discussion, it was held that H. Anraj II (supra) was
D
incorrectly decided by holding that a sale of lottery ticket
involved a sale of goods. It was emphasised that there was
no sale of goods within the meaning of Sales Tax Acts of
the different States but at the highest a transfer of actionable
claim. Consequently, all the decisions which held otherwise
were overruled, though prospectively, with effect from the E
date of the judgment in Sunrise Associates vs. Government
of NCT of Delhi – [(2006) 5 SCC 603].
(i) Skill Loto Solutions Pvt. Ltd (supra) is a recent judgment
of a three–Judge Bench of this Court in which the petition
filed by an authorized agent for sale and distribution of F
lotteries organised by the State of Punjab, had impugned
the definition of ‘goods’ under Section 2(52) of Central
Goods and Service Tax Act, 2017 (for short, ‘CGST Act’)
to the extent that actionable claims were included under
‘goods’. Consequently, notifications issued pertaining to levy
of tax on lotteries were also challenged. The petitioner G
therein had sought a declaration that the levy of tax on lottery
was discretionary and violative of Article 14, 19(1)(g), 301
and 304 of the Constitution of India. The following questions
of law were taken up for consideration in the said Writ
Petition:- H
588 SUPREME COURT REPORTS [2022] 18 S.C.R.

A “12. …
(I) Whether the writ petition is not maintainable under
Article 32 of the Constitution of India since the writ
petition relates to lottery, which is res extra
commercium and the petitioner cannot claim protection
B under Article 19(1)(g)?
(II) Whether the inclusion of actionable claim in the
definition of goods as given in Section 2(52) of Central
Goods and Services Tax Act, 2017 is contrary to the
legal meaning of goods and unconstitutional?
C (III) Whether the Constitution Bench judgment of this
Court in Sunrise Associates (supra) in paragraphs 33,
40, 43 and 48 of the judgment has laid down as the
proposition of law that lottery is an actionable claim or
the observations made in the judgment were only
D an obiter dicta and not declaration of law?
(IV) Whether exclusion of lottery, betting and gambling
from Item No. 6 Schedule III of Central Goods and
Services Tax Act, 2017 is hostile discrimination and
violative of Article 14 of the Constitution of India?
E (V) Whether while determining the face value of the
lottery tickets for levy of GST, prize money is to be
excluded for purposes of levy of GST?”
After noting that the CGST Act, 2017, being an Act of
Parliament in exercise of power of Parliament as conferred
F under Article 246A of the Constitution, this Court considered
a catena of judgments of this Court touching upon the activity
of organising and conducting lotteries, levy of taxes on
lotteries, etc. and answered Question I by holding that the
Writ Petition filed under Article 32 of the Constitution was
maintainable. Question II and III were also answered by
G
holding that the inclusion of actionable claim in the definition
‘Goods’ as given in Section 2(52) of the CGST Act, 2017 is
not contrary to the legal meaning of ‘goods’ and is neither
illegal nor unconstitutional. It was further held that in
Sunrise Associates, the Constitution Bench had laid down
H
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 589
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

that lottery is an actionable claim and the same was not an A
obiter dicta. With regard to question IV as to whether
there was any hostile discrimination in the exclusion of lottery,
betting and gambling from Item No. 6 Schedule III of CGST
Act, 2017, it was held that there was no violation of the
equality clause. The relevant observations of this Court are
B
extracted as under:
“69. In a later decision, Union of India v. Martin
Lottery Agencies Limited, (2009) 12 SCC 209, this Court
had occasion to consider levy of service tax on the lottery
tickets. This Court had held that law as it stands today
recognises lottery to be gambling, which is res extra C
commercium. In paragraph 17, following has been laid
down:—
“17. We fail to persuade ourselves to agree with the
aforementioned submission. The law, as it stands today
(although it is possible that this Court in future may take D
a different view), recognises lottery to be gambling.
Gambling is res extra commercium as has been held by
this Court in State of Bombay v. R.M.D.
Chamarbaugwala [AIR 1957 SC 699] and B.R.
Enterprises v. State of U.P. [(1999) 9 SCC 700]” E
70. Lottery, betting and gambling are well known concepts
and have been in practice in this country since before
independence and were regulated and taxed by different
legislations. When Act, 2017 defines the goods to include
actionable claims and included only three categories of F
actionable claims, i.e., lottery, betting and gambling for
purposes of levy of GST, it cannot be said that there
was no rationale for including these three actionable
claims for tax purposes. Regulation including taxation in
one or other form on the activities namely lottery, betting
and gambling has been in existence since last several G
decades. When the parliament has included above three
for purpose of imposing GST and not taxed other
actionable claims, it cannot be said that there is no
rationale or reason for taxing above three and leaving
others. H
590 SUPREME COURT REPORTS [2022] 18 S.C.R.

A 71. It is a duty of the State to strive to promote the
welfare of the people by securing and protecting, as
effectively as it may, a social order in which justice,
social, economic and political, shall inform all the
institutions of the national life. The Constitution Bench
in State of Bombay v. R.M.D. Chamarbaugwala
B
(supra) has clearly stated that Constitution makers who
set up an ideal welfare State have never intended to
elevate betting and gambling on the level of country’s
trade or business or commerce. In this country, the
aforesaid were never accorded recognition of trade,
C business or commerce and were always regulated and
taxing the lottery, gambling and betting was with the
objective as noted by the Constitution Bench in the case
of State of Bombay v. R.M.D. Chamarbaugwala
(supra), we, thus, do not accept the submission of the
petitioner that there is any hostile discrimination in taxing
D
the lottery, betting and gambling and not taxing other
actionable claims. The rationale to tax the aforesaid is
easily comprehensible as noted above. Hence, we do
not find any violation of Article 14 in Item No. 6 of
Schedule III of the Act, 2017. “
E It is clear from the paragraphs extracted above that
this Court has held that for the purpose of levy of taxation,
the actionable claims arising out of participation in a lottery
or on placing a bet or via gambling in any other form, may
be placed in a class distinct from the rest of the actionable
F claims and be subjected to taxation accordingly. Such
acknowledgment by this Court establishes a corelation
between ‘lotteries’ and ‘betting and gambling’ and places
them in the same category/class.
In answering Question V, it was held that having regard
G to the statutory provisions of the CGST Act, 2017, the value
of taxable supply is a matter of statutory regulation and
when the value is to be the transaction value which is to be
determined as per Section 15, it is not permissible to compute
the value of taxable supply by excluding the prize money
which has been contemplated in the statutory scheme.
H
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 591
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

When prize paid by the distributor/agent is not to be excluded A
from the value of taxable supply, the prize money should be
included for computing the taxable value of supply. Thus,
while determining the taxable value of supply, the prize
money is not to be excluded for the purpose of levy of goods
and service tax. In view of the above answers, the writ
B
petition was dismissed.
(j) In Reader’s Digest Association ltd. v. Williams – [(1976)
1 W.L.R. 1109], it was said:
“A lottery is the distribution of prizes by chance where
the person taking part in the operation, or a substantial C
number of them, make a payment or consideration in
return for obtaining their chance of a prize. There are
really three points one must look for in deciding whether
a lottery has been established: first of all, the distribution
of prizes, secondly, the fact this was to be done by means
of a chance and thirdly, that there must be some actual D
contribution made by the participants in return for their
obtaining a chance to take part in the lottery. The above
laid down principle shows that there should be three
elements to establish a lottery such as; prize, chance
and consideration.” E
It may be noted that in the aforesaid case too, the
passage reproduced below is included.
“A lottery is the distribution of prizes by chance where
the person taking part in the operation, or a substantial
number of them, make a payment or consideration in F
return for obtaining their chance of a prize.”
109. What emerges from the discussion of the decisions of this
Court referred to above is that ‘lotteries’ are a species within the genus
of ‘gambling.’ That one of the essential features of a lottery is its inherent
gambling nature, which persists irrespective of whether the lottery G
scheme is conducted by the Government of India, Government of a
State or by a private entity. ‘Gambling’ activities include a whole gamut
of activities, including, but not limited to ‘lotteries.’
110. It is also settled that the sale of a lottery ticket involves two
elements, namely, (i) the right to participate in a draw; and (ii) the right H
592 SUPREME COURT REPORTS [2022] 18 S.C.R.

A to win the prize, dependent on chance. Therefore, sale of a lottery
ticket is in the nature of a transfer of an actionable claim or a chose in
action.
Discussion :
111. Having regard to the aforesaid discussion, we now answer
B the points for consideration. While doing so, the following approach is
being adopted with regard to the interpretation of the Entries of the Lists
of the Seventh Schedule of the Constitution:
1. The Entries in the different Lists should be read together
without giving a narrow meaning to any of them. The powers
C of the Union and the State Legislatures are expressed in
precise and definite terms. Hence, there can be no broader
interpretation given to one Entry than to the other.
Even where an Entry is worded in wide terms, it cannot
be so interpreted as to negate or override another Entry or
D make another Entry meaningless. In case of an apparent
conflict between different Entries, it is the duty of the Court
to reconcile them in the first instance.
2. In case of an apparent overlapping between two Entries,
the doctrine of pith and substance has to be applied to find
E out the true nature of a legislation and the Entry within
which it would fall.
3. Where one Entry is made ‘subject to’ another Entry, all
that it means is that out of the scope of the former Entry, a
field of legislation covered by the latter Entry has been
F reserved to be specially dealt with by the appropriate
Legislature.
4. When one item is general and another specific, the latter
will exclude the former on a subject of legislation. If,
however, they cannot be fairly reconciled, the power
G enumerated in List II must give way to List I.
5. On a close perusal of the Entries in the three Lists of the
Seventh Schedule of the Constitution, it is discerned that
the Constitution has divided the topics of legislation into the
following three broad categories: (i) Entries enabling laws
H to be made; (ii) Entries enabling taxes to be imposed; and
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 593
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

(iii) Entries enabling fees and stamp duties to be collected. A
Thus, the entries on levy of taxes are specifically mentioned.
Therefore, per se, there cannot be a conflict of taxation
power of Union and the State. Thus, in substance the taxing
power can be derived only from a specific taxing Entry in
an appropriate List in the Seventh Schedule. Such a power
B
has to be determined by the nature of the tax and not the
measure or machinery set up by the statute.
112. At the same time, Article 265 of the Constitution which states
that no tax shall be levied or collected except by authority of law, ought
to be borne in mind. In the instant cases, authority of law would imply
C
the competence of the State Legislatures of Karnataka and Kerala in
enacting the impugned laws.
113. In view of the detailed discussion made above, we find that
the dictum of this Court in M.P.V. Sundararamier analysing the entries
in Lists I and II dealing with various subjects of legislation and entries
D
concerning taxation being separate and distinct must be borne in mind
while interpreting the impugned Acts. That is the constitutional scheme.
In this regard, we reiterate what has been observed in Hoechst
Pharmaceuticals Ltd., to the effect that taxation is considered to be a
distinct matter for purposes of legislative competence and the power to
tax cannot be deduced from the general legislative Entry as an ancillary E
power. This is because, as already stated, the general subjects of legislation
are dealt with in one group of Entries and the power of taxation in a
separate group. Also, a power to legislate as to the principal matter
specifically mentioned in the Entry shall also include within its expanse
legislation touching only upon incidental and ancillary matters. The power F
to levy tax cannot be considered to be an incidental and ancillary matter
while interpreting an entry in the Lists concerning legislative competence
of the Parliament or Legislature of any State to enact laws on the subjects
mentioned in the Entry. It is reiterated that taxation is not intended to be
comprised in the main subject of an entry in the Lists but being a distinct
matter for the purpose of legislative competence must be relatable to G
the specific entry dealing with taxation.
114. As a sequitur, it is observed that Entry 97 in List I which is
the residuary entry relatable to Article 248 of the Constitution cannot be
invoked or pressed into service when a specific entry empowering the
H
594 SUPREME COURT REPORTS [2022] 18 S.C.R.

A Parliament or the Legislature of a State to pass laws regarding the taxation
on any subject is specifically enumerated either in List I or List II.
115. It would also be useful to mention that since the legislative
competence to pass a law relating to taxation being specific and distinct
in List I or List II, such an entry is not found in List III. In other words,
B both the Parliament as well as the Legislature of a State cannot have the
competence to levy tax on a particular subject and hence, there is no
specific entry regarding taxation in List III or the Concurrent List. In
fact, Entry 47 of List III refers only to power to impose ‘fees in respect
of any of the matters in the List but not including fees taken in any
court’. The distinction between the power to levy fees and the power to
C levy a tax is well known and it would not be necessary to go into that
aspect of the matter in the present cases except to highlight that there is
no Entry for taxation in the Concurrent List. Therefore, while interpreting
a taxation Entry in List I or List II, all efforts must be made to interpret
it in such a way as to give content and meaning to the same having
D regard to the Constitutional scheme under which the distribution of
legislative powers have been envisaged in the Seventh Schedule and
bearing in mind and the object and intent behind it.
116. Therefore, before approaching Entry 97 of List I which is a
residuary Entry in the Union List (List I), it would be necessary to interpret
E the relevant taxation Entry in the State List and it is only in the absence
of there being legislative competence in the relevant taxation Entry in
the State List could such a power be traced to Entry 97 of List I in the
residuary list provided such a power is not also traceable to any Entry in
the Union List. This is because in List I itself the entries concerning
taxation are separate and distinct. Such Entries are from Entries 82 to
F 92B and Entry 96 of List I deals with fees in respect of any of the
matters in the List but not including fees taken in any court. Therefore,
even in respect of any subject in any Entry in List I, the power to tax
cannot be implied or read under Entry 97 of the said List which is only a
residuary entry, if the same is enumerated in List II in which case it
G would come within the legislative competence of the State Legislature.
117. In the above backdrop, we shall now consider Entry 40 of
List I and Entries 34 and 62 of List II to assess whether there is any
apparent conflict/overlapping between the same. We have already
discussed in detail the concept of ‘betting and gambling’ as well as
H ‘lotteries’. It is not in dispute that a scheme of lottery is a form of gambling.
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 595
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

As rightly contended by Sri C. Aryama Sundaram, learned Senior A
Counsel appearing for the State of Nagaland, the expression ‘betting
and gambling’ is a genus while the expression ‘lottery’ is a species of
betting and gambling. We have also alluded to the same in detail above
and we have referred to the judgments of this Court in the said context.
Thus, the term ‘lotteries’ being a species of the activity of ‘betting and
B
gambling’ is carved out of Entry 34 of List II and placed in Entry 40 of
List I only to the extent of lotteries organised by the Government of
India or the Government of a State. That means lotteries organised by
private parties or entities in a State or lotteries authorised by government
of a State continue to remain within the scope and ambit of Entry 34 of
List II dealing with ‘betting and gambling’. The inference is that in so far C
as lotteries organised by the Government of India or the Government of
any State is concerned, in order to have uniformity of laws throughout
the country governing such lotteries the framers of the Constitution have
intentionally included the said activity in Entry 40 of List I. Consequently,
the Parliament has legislative competence to pass laws on lotteries
D
organised by the Government of India or the Government of any State.
This means the Parliament can pass laws to regulate organisation of
lotteries by the Government of India or the Government of a State
uniformly throughout the country, as indubitably the conduct of such
lotteries by the sovereign State is a source of revenue for the Government
of India. Therefore, in order to enhance the faith of the people in the E
organisation and conduct of such lotteries throughout the territories of
India by the Government of India or the Government of any State, said
regulation by the Parliament is enabled by placing the subject in Entry 40
of List I. Consequently, the 1998 Act has been passed by the Parliament
which is regulatory in nature, as has been discussed above. If, for the
F
purpose and object of regulation of lotteries organised by the Government
of India or the Government of any State, any fee is to be levied it is as
per Entry 96 of List I.
118. But the question is, whether, while interpreting Entry 40 of
List I alongside Entries 34 and 62 of List II, the power to tax lotteries
organised by the Government of India or the Government of a State is G
also taken away from Entry 62 of List II and is to be read within the
ambit of Entry 40 of List I and therefore, the States of Karnataka and
Kerala in the instant cases had no legislative competence to enact the
impugned Acts. We have already stated that only lotteries organised by
the Government of India or the Government of a State is carved out of H
596 SUPREME COURT REPORTS [2022] 18 S.C.R.

A the subject, ‘betting and gambling’ in Entry 34 of List II and is placed in
Entry 40 of List I and Entry 62 of List II, inter alia, speaks of tax on
‘betting and gambling’. By that, we do not think by that the State
Legislatures have been denuded of their power to levy tax under Entry
62 of List II on lotteries organised by Government of India or Government
of a State. We say so for the following reasons:
B
(a) Entry 62 of List II is a specific taxation entry on luxuries,
including taxes on entertainments, amusements, betting and
gambling. The expression ‘betting and gambling’ would have
to be read ejusdem generis with entertainments and
amusements. The tax is thus on the activity of ‘betting and
C gambling’ as it is on an activity.
(b) The expression ‘betting and gambling’ is also found in Entry
34 of List II. We have discussed at length above the content
of the said expression and as to what it encompasses. The
activity of ‘betting and gambling’ includes, inter alia,
D lotteries. Lotteries can be conducted by the Government of
India or the Government of States or authorised by a State
or be conducted by private entities in a State. Thus, a lottery
conducted by any of the above entities, Government or
private is an activity falling within the nomenclature of
E ‘betting and gambling’ which is the subject in Entry 34 List
II. But what has been carved out of Entry 34 of List II is
only lotteries conducted by the Government of India or the
Government of any State. Therefore, all other types of
lotteries continue to remain within the scope and ambit of
‘betting and gambling’ as an activity in Entry 34 of List II.
F
(c) Hence under Entry 62 of List II, the specific power to tax
an activity which is ‘betting and gambling’ is reserved with
the State legislature and cannot be read within the scope
and ambit of Entry 40 of List I which is inherently restricted
in its scope. We say so for the following reasons:
G
(i) First, when a specific entry regarding taxation is
provided in List II empowering the State Legislature
to levy tax on a subject, namely, ‘betting and
gambling’ amongst other similar activities, the same
cannot be read by implication in an entry of List I
H namely Entry 40 of List I. This is because a taxation
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 597
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

entry is separate and distinct from an entry dealing A
on a particular subject. This principle has been
adequately explained by this Court in several
judgments such as M.P.V. Sundararamier and
followed in Hoechst Pharmaceuticals, Kesoram
discussed above.
B
(ii) Second, a taxation entry or legislative power to levy
a tax on ‘betting and gambling’ in the instant case,
cannot be split between the Parliament and the State
Legislature when the said power is expressly
enumerated in Entry 62 of List II. This is the
constitutional scheme under the three Lists. This is C
as per the constitutional scheme. This is also evident
on a perusal of the Entries of List III (Concurrent
List) which empowers both the Union as well as State
Legislature to enact laws on subjects mentioned
therein and the powers to levy a tax is conspicuous D
by its absence.
(iii) Third, the object and purpose of Entry 62 of List II is
to tax the activity of ‘betting and gambling’, whether
it is conducted by a private entity or a State authorised
entity or an instrumentality or agency or for that E
matter by the Government of India or the Government
of any State. This is because irrespective of who
organises a lottery scheme, it is ultimately a species
of gambling. It is nobody’s case that participation in
a lottery scheme is not gambling. The said activity
i.e. lottery scheme can be conducted throughout the F
territory of India provided a particular State grants
permission to organise and conduct the said activity
in that State. Thus, organisation and conducting of
lottery can be a pan India activity of gambling and
when a particular State permits a lottery scheme G
conducted by the Government of India or the
Government of any State in that State, a tax is leviable
on the same, which is a tax on gambling. Thus Entry
62 of List II empowers the State Legislatures to
impose tax on ‘gambling’ irrespective of who or which
H
598 SUPREME COURT REPORTS [2022] 18 S.C.R.

A entity is conducting it including the Government of
India or Government of any State.
(iv) Fourth, ‘betting and gambling’ is a subject
enumerated in Entry 34 of List II and is a State
subject. Therefore, the permission for conducting any
B betting and gambling activities within a State,
including conduct of a lottery scheme under the said
Entry, gives competence to the State Legislatures to
also tax the said activity irrespective of who conducts
it. This is because what is being taxed is a gambling
activity which is squarely covered under Entry 34 of
C List II and not on lottery per se conducted by
Government of India or Government of a State.
Therefore, the State Legislature has the
competence to tax lottery scheme which is gambling
being conducted not only by the Government of India
D or the Government of any State or by any other
agency or instrumentality of a particular State but
also by a private entity within the State as gambling.
(v) Fifth, the contention of respondents-States that the
subject, ‘lotteries organised by the Government of
E India or the Government of a State’ being placed in
Entry 40 of List I would also empower only the
Parliament to impose a tax on the same by way of
implication under the said Entry itself is not a correct
interpretation of the Entries in the Lists.
F (vi) Sixth, Entry 97 of List I can be invoked only when
any matter is not enumerated in List II or List III
including any tax not mentioned in the said Lists. There
is no specific Entry for levy of tax on betting and
gambling in List I. It is only in Entry 62 of List II.
G Thus, Entry 62 of List II gives legislative competence
to a State Legislature to levy a tax on ‘betting and
gambling’. This would also include a tax on
organisation and conduct of lotteries, whether by the
Central Government or Government of any State or
authorised by a State or by any private entity within
H the State when permission has been given by a State
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 599
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

Government to conduct such an activity of gambling. A
Thus, Entries 34 and 62 of List II which deal with
‘betting and gambling’ have been interpreted
identically and the said expression is given an identical
meaning. Thus, lotteries organised by the Government
of India or the Government of a State is only excluded
B
from Entry 34 of List II which deals with ‘betting
and gambling’ only, for the purpose of regulation by
the Parliament and not for levy of tax.
(vii) Seventh, when the State Government has the
legislative competence to levy tax on ‘betting and
gambling’ as a specific taxation entry is provided to C
levy tax on the said activity under Entry 62 of List II
the said entry must be interpreted comprehensively
and not in a restricted or narrow manner by excluding
taxation on gambling on lottery conducted by
Government of India or any Government of a State D
from the purview of the said Entry and read into Entry
40 of List I by implication.
(viii) Eighth, such a power to levy taxes cannot be read
into Entry 40 of List I by implication or into Entry 97
of List I as a residuary power. Such interpretation, if E
endorsed, it would do violence to the manner of
interpretation of Entries in the Lists and prove to be
contrary to the Articles of the Constitution and
judgments of this Court cited above.
(ix) Ninth, if the State Government does not permit a F
particular species of betting and gambling activity in
the State including the organisation and conduct of
lotteries by the Government of India or the
Government of any State then obviously it cannot
tax such an activity. But if it permits any species of
betting and gambling activity within the State in terms G
of Entry 34 of List II then the State has legislative
competence to tax such an activity of betting and
gambling including lotteries irrespective of who
conducts it as per Entry 64 of List II.
H
600 SUPREME COURT REPORTS [2022] 18 S.C.R.

A (x) Tenth, Entry 40 of List I is meant only for the
regulation of lotteries organised by the Government
of India or the Government of a State. The said Entry
cannot be expanded to cover the power to levy taxes
on lotteries by the Parliament when as such a power
is envisaged in Entry 62 of List II. The Parliament,
B
therefore, cannot tax a gambling activity, namely,
organisation of lotteries conducted by the Government
of India or for Government of a State on the strength
of Entry 40 of List I. It may however regulate the
said activity. Any impost strictly for the purpose of
C regulation of lotteries is permissible so long as it is
not a tax on gambling which is only within the ambit
of only Entry 62 of List II.
In other words, in order to have uniformity in
the regulation of lotteries organised by the
D Government of India or the Government of a State
throughout the territory of India, Entry 40 is found in
List I and the Parliament is vested with the power to
regulate the same.
(xi) Eleventh, any betting and gambling activity conducted
E by a private entity in a State or is authorized by a
State Government can be regulated only by the State
Legislature. This is because of Entry 34 in of List II
which deals with betting and gambling which also
includes lotteries and the same does not fall within
Entry 40 of List I.
F
(xii) Twelfth, when a Government of a State permits
organisation or conduct of lotteries either by the
Government of India or the Government of any State
thereby enabling participation in the scheme of lottery
by those persons who have purchased the lottery
G tickets in the State, the territorial nexus is established
as lottery, being species of betting and gambling, is
permitted to be conducted within the State which has
sought to impose taxation on the conduct of lotteries.
Such nexus persists even when the lotteries promoted
H within the taxing State are conducted by the
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 601
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

Government of India or the Government of any other A
State. Therefore, we do not find any merit in the
contention regarding the impugned laws being invalid
on account of extra territorial operation.
119. In conclusion we hold that the tax sought to be imposed by
the State Legislatures of Karnataka and Kerala by way of the impugned B
Acts, is traceable to the power conferred on the State Legislatures under
Entry 62 of List II. The said entry contemplates imposition of taxes,
inter alia, on the entire genus of ‘betting and gambling’. having concluded
that ‘lottery’ of every kind, whether organized by the Government of
India or the Government of a State or by a private entity is included
within the genus of ‘gambling’, we find no reason to hold that State C
organized lotteries are excluded from the ambit of ‘betting and gambling’
as appearing in Entry 62 of List II. We are not inclined to accept the
view that ‘lotteries organized by the Government of India or the
Government of a State’ are to be excluded from the expression ‘betting
and gambling’ as appearing in Entry 62 of List II which deals with taxes D
on gambling activities, simply because such category of lotteries is
excluded from the regulatory field relatable to betting and gambling under
Entry 34 of List II and included in Entry 40 of List I. Exclusion of a
legislative field from a term appearing in a general Entry, does not
necessarily mean that such field ought to be excluded from the taxation
Entry. This means that the term ‘betting and gambling’ in Entry 62 of E
List II is being construed in the same way as in Entry 34 of List II. The
expression is accorded the same meaning and interpretation in both the
Entries, i.e., that gambling includes lotteries. However, ‘lotteries organized
by the Government of India or the Government of a State’ have been
carved out of Entry 34 of List II and been placed with the Union. Entry F
34 of List II is denuded to this limited extent. Such transposition of power
does not mean that the term ‘betting and gambling’ has a different meaning
in each of the aforesaid Entries. It only implies that for regulatory
purposes, having regard to the need for uniform legislation throughout
the territory of India, the Parliament has been conferred with exclusive
jurisdiction to regulate the conduct of lotteries, throughout the territory G
of India.
120. In the instant case, the tax imposed is on the ‘gambling’
nature of lotteries, which field is covered in its entirety under Entry 62 of
List II and the power to impose tax under this Entry extends in relation
H
602 SUPREME COURT REPORTS [2022] 18 S.C.R.

A to lottery of every kind, with no distinction as to the entity organizing the
same.
121. Thus, in the context of lotteries, the organisation and conduct
of a lottery scheme being a pan India activity, when any State
Government permits the Government of India or any other State
B Government to organise the lottery scheme in that State, Entry 62 of
List II would enable the Legislature of that State to levy taxes on the
same.
122. Hence, in our view, the Legislatures of the State of Karnataka
and Kerala were fully competent to enact the impugned Acts and levy
C taxes on the activity of ‘betting and gambling’ being organised and
conducted in the said respective States, including lotteries conducted by
the Government of India or the Government of any State.
123. The Division Benches of the High Courts was not right in
holding that the State Legislatures had no power to levy tax on lotteries
D conducted by the Government of India or the Government of any State
or Union territory in the State of Karnataka as such a power could be
read in Entry 40 or Entry 97 of List I and only the Parliament could levy
such a tax. Since we have held that the States of Karnataka and Kerala
had the legislative competence to enact the impugned Acts, the question
of refund of tax collected under the same does not arise.
E
Summary of Conclusions :
124. In view of the aforesaid discussion, we come to the following
summary of conclusions: -
(i) That the subject ‘betting and gambling’ in Entry 34 of List
F II is a State subject.
(ii) From the judgments of this Court, it is now clear that
‘lotteries’ is a species of gambling activity and hence lotteries
is within the ambit of ‘betting and gambling’ as appearing in
Entry 34 List II.
G (iii) The expression ‘betting and gambling’ is relatable to an
activity which is in the nature of ‘betting and gambling’.
Thus, all kinds and types of ‘betting and gambling’ fall within
the subject of Entry 34 of List II. The expression ‘betting
and gambling’ is thus a genus it includes several types or
H species of activities such as horse racing, wheeling and other
STATE OF KARNATAKA & ANR. ETC. v. STATE OF 603
MEGHALAYA & ANR. ETC. [B. V. NAGARATHNA, J.]

local variations/forms of ‘betting and gambling’ activity. The A
subject ‘lotteries organised by the Government of India or
the Government of a State’ in Entry 40 of List I is a Union
subject. It is only lotteries organised by the Government of
India or the Government of State in terms of Entry 40 of
List I which are excluded from Entry 34 of List II. In other
B
words, if lotteries are conducted by private parties or by
instrumentalities or agencies authorized, by Government of
India or the Government of State, it would come within the
scope and ambit of Entry 34 of List II.
(iv) Thus, the State legislatures are denuded of their powers
C
under Entry 34 of List II only to the extent of lotteries
organised by the Government of India or the Government
of a State, in terms of Entry 40 of List I. In other words,
except what is excluded in terms of Entry 40 of List I, all
other activities which are in the nature of ‘betting and
gambling’ would come within the scope and ambit of Entry D
34 of List II. Thus, ‘betting and gambling’ is a State subject
except to the extent of it being denuded of its powers insofar
as Entry 40 of List I is concerned.
(v) Entry 62 of List II is a specific taxation Entry on ‘luxuries,
including taxes on entertainments, amusements, betting and E
gambling’. The power to tax is on all activities which are in
the nature of ‘betting and gambling,’ including lotteries.
Since, there is no dispute that lotteries, irrespective of
whether it is conducted or it is organised by the Government
of India or the Government of State or is authorized by the
F
State or is conducted by an agency or instrumentality of
State Government or a Central Government or any private
player, is ‘betting and gambling’, 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 G
lotteries, irrespective of the entity conducting the same.
Hence, the legislations impugned are valid as the Karnataka
and Kerala State Legislatures possessed legislative
competence to enact such Acts.
H
604 SUPREME COURT REPORTS [2022] 18 S.C.R.

A (vi) Thus, the scope and ambit of lotteries organised by
Government of India or Government of State under Entry
40 of List I is only in the realm of regulation of such lotteries.
The said Entry does not take within its contours the power
to impose taxation on lotteries conducted by the Government
of India or the Government of State.
B
(vii) We also hold that lottery schemes by the Government of
other States are organised/conducted in the State of
Karnataka or Kerala and there are express provisions under
the impugned Acts for registration of the agents or
promoters of the Governments of respective States for
C conducting the lottery schemes in the State of Karnataka
and the State of Kerala. This itself indicates sufficient
territorial nexus between the respondents–States who are
organising the lottery and the States of Karnataka and
Kerala.
D (viii) In view of the aforesaid conclusions, we find that Division
Benches of the High Courts of Kerala and Karnataka 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 State (in the State of
E Karnataka and Kerala respectively).
125. In the result, the appeals filed by the State of Karnataka and
State of Kerala and others are allowed by setting aside the impugned
judgments passed by the Division Benches of the High Courts of
Karnataka and Kerala.
F Parties to bear their respective costs.

Ankit Gyan and Amarendra Kumar Appeals allowed.
(Assisted by : Ajay, LCRA)

G

H