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Entry 34 on the State List of Seventh Schedule says betting and gambling.
Entry 62 mentions taxes on betting and gambling.
However, we have distinguished between betting and gambling and lotteries.
Entry 40 on the Union List is clear, it mentions lotteries organized by the government of India or the government of any state.
Therefore, Union laws override state powers and we do have a Central Lotteries Regulation Act of 1998. Section 5 of this statute states the following. "A state government may, within the state, prohibit the sale of tickets of a lottery organised, conducted or promoted by every other State."
However, Section 11(1) of the law also authorises the Central government to formulate rules. The reasons for delay are not clear.
But these rules surfaced only in 2010 and were notified by the Home Affairs Ministry. Why should it take 12 years for rules to be announced?
These rules mention an Organising State (OS) and a state where tickets for a lottery run by an OS are sold. What's interesting is that these rules completely take away powers a state government possesses on prohibiting sales of lottery tickets by some other State.
For instance, Section 5(1) of the Rules states, "If a state government is of the opinion that the Organising State or their distributors or selling agents are organizing lotteries in violation of the provisions of the Act and these rules, it shall immediately bring the violations to the notice of the Organising State along with the details of such violations or irregularities noticed and the central government shall also be apprised of such violations or irregularities simultaneously."
Without more quotes, the power of prohibition moves to the Centre. And these Rules also lay down how much state governments can charge as "tax". It is for lawyers and judges to decide how rules can negate powers that an original statute confers.