Kerala HC declares Kerala Tax on Paper Lotteries Act, 2005 as Unconstitutional [Read Judgment]

The Kerala High Court held that the constitutional validity of Kerala Paper Lotteries Act, 2005, which levy license fee on the draw of lotteries under Section 5BA of Kerala General Sales Tax (KGST) Act, what is sought to be taxed indirectly is the sale of the lottery tickets within the state of Kerala, which is prohibited by the virtue of law, so the Kerala Tax on the lottery was declared unconstitutional.

By virtue of the Finance Act, 2001 introduced with effect from July 23, 2001, the State of Kerala has introduced Section 5BA to the Kerala General Sales Tax Act, 1963 imposing license fee on the draw of lotteries, in lieu of tax payable under Section 5 (1) of the KGST Act. The validity of Section 5BA was under challenge before the court.

The main ground of attack against the validity of the Act is the lack of legislative competence of the state. It is pointed out that the subject “lotteries organized by the Government of India or the Government of a State” are within the realm of the legislative competence of the Parliament, by virtue of Entry 40 in List-I of the 7th Schedule in the Constitution of India. It is in the exercise of that power that the Parliament has enacted the Lotteries (Regulation) Act, 1998, and does not provide any tax on lotteries, including paper lotteries as the subject is covered under Union List, the state has no power to make laws.

The division bench of Justice  C.K.Abdul Rehim and Justice T.V. Anil Kumar held that the constitutional validity of Kerala Paper Lotteries Act, 2005, which levy license fee on the draw of lotteries under Section 5BA of Kerala General Sales Tax (KGST) Act, what is sought to be taxed indirectly is the sale of the lottery tickets within the state of Kerala, which is prohibited by the virtue of law.