From UPSC perspective, the following things are important :
Prelims level: Doctrine of Pith and Substance
Why in the News?
In a landmark ruling, the Supreme Court has reaffirmed the Doctrine of Pith and Substance, holding that the Centre cannot impose service tax on lottery distributors as the power to tax lotteries falls exclusively within the jurisdiction of state governments.
Why did the Supreme Court dismiss the Centre’s Plea?
- Lotteries Are Not a Service but Gambling: The court ruled that the relationship between states and lottery distributors is buyer-seller, not principal-agent, making service tax inapplicable.
- Exclusive Taxing Power of States: The Constitution grants state legislatures the authority to tax betting and gambling, including lotteries.
- Parliament cannot override this through residuary powers (Entry 97 – List I) as taxation on lotteries is already covered under Entry 62 – List II.
- Doctrine of Pith and Substance Applied: The court ruled that the dominant nature of lotteries is gambling, even if marketing and promotion involve service elements.
- Since the primary focus remains within the State List, the Centre cannot impose service tax on it.
- Sikkim High Court Ruling Upheld: The SC upheld the 2012 Sikkim HC decision, which declared Section 65(105) of the Finance Act, 1994 (as amended in 2010) unconstitutional, as it attempted to impose service tax on lottery-related activities.
What is Doctrine of Pith and Substance?
- The Doctrine of Pith and Substance helps determine whether a law’s dominant purpose falls within the legislative competence of the enacting government.
- Key Features:
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- Examines the true nature of a law, rather than incidental overlaps.
- Resolves Centre-State conflicts over legislative powers.
- Allows minor encroachments if the primary subject falls within the legislature’s authority.
- Major Supreme Court Cases Applying the Doctrine:
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- State of Bombay v. FN Balsara (1951): Upheld a state alcohol prohibition law, despite minor overlaps with Union subjects.
- Prafulla Kumar Mukherjee v. Bank of Commerce (1947): Allowed incidental encroachment as long as the law’s primary focus was within its jurisdiction.
- Application in Lottery Taxation Case:
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- The Centre’s argument for taxing lotteries under Entry 97 – List I was rejected.
- The dominant purpose of lottery transactions is gambling, which states exclusively regulate and tax.
PYQ:[2016] The Parliament of India acquires the power to legislate on any item in the State List in the national interest if a resolution to that effect is passed by the: (a) Lok Sabha by a simple majority of its total membership (b) Lok Sabha by a majority of not less than two-thirds of its total membership (c) Rajya Sabha by a simple majority of its total membership (d) Rajya Sabha by a majority of not less than two thirds of its members present and voting |
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