The Delhi government had issued a notification on January 31, 1995, under Section 5 of the Delhi Sales Tax Act saying "lottery tickets are now taxable at 20 paise in a rupee." The petitioners had also challenged issuance of notices by sales tax department to lottery dealers to face assessment from 1990-91 for their failure to register themselves.

The court said: "Levy of sales tax at the rate of 20 per cent on sale of lottery tickets is neither arbitrary nor discriminatory" and "notices issued under Delhi sales tax act pursuantthereto are neither vitiated by malafides nor are void." The court rejected lottery owners' argument that the notification was void in the absence of a constitutional amendment and said the levy of tax on lottery "does not suffer from any infirmity for want of constitutional amendment."

The bench also rejected the lottery traders' plea that if the court upheld the tax imposed on sale of lottery tickets, it should be made good prospectively as retrospective effect of the notification would be ruinous for the traders. However, the bench quashed the assessments for tax liability made by the sales tax department against haryana state lotteries and Rajasthan state lotteries.

The total tax demanded from Haryana tax lotteries was over Rs 69 lakh while the same in case of Rajasthan state lotteries it was over Rs 3 crore.

The bench asked these two state lotteries to appear before the sales tax officer on September 14 for determination of quantum of taxable turnover and whether any penalty was liable to beimposed.

Upholding validity of tax on sale of lottery tickets, it said, "Legislature is free to choose objects of taxation, impose different rates, exempt classes of property from taxation, subject to different classes of property to tax in different modes of assessment."

"A taxing statute is not exposed to attack on the ground of discrimination merely because different rates of taxation are prescribed for different categories of persons, transactions, occupations or objects," the court said.It said, "Merely because the tax imposed is (unreasonably) high or heavy, taxation statute is not rendered colourable."