2018 (4) TMI 1009 – KERLA HIGH COURT – 2018 (12) G. S. T. L. 145 (Ker.) – Right to carry lottery business – Use of Kerala GST Act, 2017 and police power to interfere into the lottery business – practical difficulty in following of 56(20A)(d) of the Kerala State GST Rules – Production of unsold lotteries before the authority within 48 hours – Challenge to the GST Rules, 2017 on a premise that these rules are colourable exercise of delegated legislation to interfere with rightful conduct of lottery business in the State – Held that:- Rule 56(20A)(d) refers to satisfaction entered by the authority as to the violations of the Lotteries (Regulation) Act. This Court is of the view that the above Rule has to be struck down as the State has no power to constitute one more authority under the Kerala State GST Rules to enter satisfaction as to the violations of the lottery. The Indian Constitution do not recognise police power as such.
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The police cannot act merely based on the information
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down holding that the State has no legislative competence to formulate such Rule. – WP(C).No. 27158 of 2017 Dated:- 13-4-2018 – A. MUHAMED MUSTAQUE, J. Petitioner: By Sri. N. Venkat Raman, Senior Advocate. Advs. Sri. A. Kumar, Sri. P.J. Anil Kumar, Smt. Mini, Sri. P.S. Sree Prasad. Respondent: R1 to R10 by Sri. Pallav Shishodia, Senior Advocate. Adv. Sri. G. Prakash. Spl. Govt. Pleader (Taxes) Sri. C.E. Unnikrishnan. R11 & R12 by Sri. P.S. Raman, Senior Advocate. Adv. Sri. Terry v. James. J U D G M E N T 1. This case raises an important question on the scope of exercise of power by a State invoking its police power as well as tax regime to interfere with the sale of other State lotteries. 2. The State of Kerala is not a lottery free zone, means to say that, there is no prohibition of sale of lottery. The first petitioner is a distributor of lottery, organised and conducted by the Government of Mizoram. In this writ petition, the petitioners highlight grievance regarding interferen
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tteries (Regulation) Rules, 2010 on the launch of their Lottery Scheme. Ext.P10 is the said notification. In the said notification, it was mentioned that, first draw would commence on 7.8.2017 at 3 pm onwards. Based on such notification, the State of Mizoram decided to market and sell Mizoram State Lotteries in the State of Kerala. Prior intimation was also given to the Chief Secretary of Kerala by communication dated 21.7.2017. Ext.P11 is the said communication. According to the petitioners, this intimation was given in compliance of Rule 3(3) of the Lotteries (Regulation) Rules. It is stated in the writ petition that the said communication also included all the information required under the law by giving details such as names of selling agents/distributor, name of the Lottery Scheme, number of tickets printed, gross value of tickets etc. However, this notification was superseded by another notification dated 24.7.2017 and published, which is evident from Ext.P14. This was owing to t
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n of every lottery conducted by them. In case, the organizing State decides to organise more than one lottery, the procedure as provided under sub-rule 3 of Rule 3 will have to be followed for every such lottery. [See Rule 3(4)]. 6. Under Section 4(h) of the Lotteries (Regulation) Act no lottery shall have more than one draw in a week. The Mizoram lottery introduced in the State of Kerala consists of different lotteries having draw from Monday to Sunday. That means, different sets of lotteries are organised for sale each day. 7. On 28/7/2017, the petitioners were served with a notice (Ext.P26) issued by the Deputy Commissioner of State Goods & Services Tax Department, Kerala, directing the petitioners to do the following, within 24 hours of receipt of notice: 1.You are required to prove that the lottery to be held is in compliance of Section 3 4 of the Lotteries (Regulation) Act, 1998 along with other provisions of the said Act. 2. You are also required to furnish details as provid
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conclusion that the lottery tickets stocked for sale were in violation of the Lotteries (Regulation) Act. The petitioners assailed the validity of such Rules under the Kerala State Goods and Services Tax Act along with other prayers in the writ petition. The petitioners also challenged notice issued by the Deputy Commissioner directing them to comply with the matters mentioned therein. This notice is Ext.P26. The dispute in this writ petition essentially rests on the validity of the rules and the power exercised by the Deputy Commissioner of Tax Department relatable to the Rules. 9. Apart from the challenge as above, the petitioners also have raised a contention that the officials under the Kerala State GST Act are not entitled to invoke the provisions of the Kerala State GST Act against the petitioners for sale of lotteries as the sale of lotteries is governed by Integrated Goods and Service Tax Act, 2017 (IGST Act) since the sale of lotteries by the supplier and the place of supply
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d attract penal provisions of the Lotteries (Regulation) Act. The Government also suspect unauthorised tickets being sold without knowledge of the Mizoram State. It is pointed out Nos.80 lakhs of lottery tickets are printed for each draw and it is impossible to match the revenue generated from sale with the price offered. The State made an attempt to demonstrate that the revenue for sale has no match with gross price money. It is further pointed out that even by rough estimate it would go to show that the sale cannot be conducted without huge loss being suffered by the Mizoram State. It is also pointed out that supply of lottery was done by an officer of the Mizoram Government in the State of Kerala and supply was within Kerala and therefore, the transaction is intra-State Supply coming under the purview of Section 8 of IGST Act. It was further submitted that since the petitioners are having a case that transaction is covered by IGST Act, they do not have any cause of action to challen
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time of the draw; (g) Details of the prize winning tickets along with the amount of prize or prizes prizes in respect of each draw, name and address of winners; (h) Proof of despatch and receipt of unsold tickets by the organizing State, in case the licensee is a distributor or selling agent; (i) proof of payment of sale proceeds of the lottery to the organizing State or deposit in the Public Ledger Account of the organizing State in case the licensee is a distributor of selling agent; and the same shall be produced for verification by any authority under this Ordinance. 13. Rule 56(20A) reads as follows: Rule 56(2OA): Every agent or distributor selling lottery tickets or a selling agent of lotteries authorised by the State and who is registered under the Ordinance, shall file the information return in Annexure before the Deputy Commissioner of State Tax, Thiruvananthapuram, Deputy Commissioner of State Tax, Ernakulam or Deputy Commissioner of State Tax, Palakkad, as the case may be,
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te Tax, Ernakulam or Deputy Commissioner of State Tax, Palakkad, as the case may be, as and when it is received from the organizing State for verification; (b) The physical verification of the details submitted in Annexure shall be done by the Deputy Commissioner of State Tax, Thiruvananthapuram, Deputy Commissioner of State Tax, Ernakulam or Deputy Commissioner of State Tax, Palakkad, as the case may be, during the actual retail sale of tickets; (c) The physical verification of unsold tickets shall be done by the Deputy Commissioner of State Tax, Thiruvananthapuram, Deputy Commissioner of State Tax, Ernakulam or Deputy Commissioner of State Tax, Palakkad, as the case may be, (d) Violations of the Lotteries (Regulation) Act, 1998 (Central Act 17 of 1998) and the Rules made thereunder, if any, detected by any authority shall be informed to the police for initiating action under section 7 of the said Act and to the Government for initiating action under section 4 of the said Act. 14. The
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sioner of State GST Department, Kerala. Though various arguments have been raised as to the power of the State Officials to proceed against the petitioners under the Kerala State GST Act, this Court cannot decide such issues without the same being considered by a primary authority which issued such notices. Merely because this court was addressed and called upon to decide certain issues, which primarily need to be considered by a primary authority, as the court's jurisdiction on such matters can be exercised only by judicial review, the court must resist from pre-empting the primary authority deciding the matter after hearing the petitioners. Therefore, the question whether the petitioners' activities would fall within the IGST regime or Kerala State GST regime will have to be addressed by the primary authority after hearing the petitioners. Therefore, this Court is of the view that the question whether IGST would apply as the transaction in question is inter-State transaction
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rcumstances it is appropriate to proceed further after adverting to the cause of action of the petitioners to approach this Court: 18. Point i. -Whether cause of action is alive or not. According to the learned Senior Counsel appearing for the Government, the petitioners' main challenge is against a notice issued under the Kerala State GST dated 28.7.2017 and consideration of Ext.P26 would arise only if Mizoram Government had an intention to conduct sale of lottery in the State. The learned Senior Counsel particularly referred to the Ext.R11(g) produced along with the counter affidavit filed on behalf of the State of Mizoram and submits that the lottery introduced in the State was withdrawn with immediate effect. It is pointed out that this notification was published through Gazette. The learned Senior Counsel further pointed out that, the notification issued, cancelling that notification on 28.11.2017 cannot revive what was repealed. The learned counsel particularly referred Secti
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t power is traceable under Section 21 of the General Clauses Act, 1897. Further, it is also open for the Mizoram Government to issue a fresh notification, if so warranted. Considering the stand of the Mizoram Government that they want to sell the lottery tickets in Kerala, the question on the cause of action also has to be considered based on Ext.P26 as well. That question is whether Ext.P26 poses any threat to the petitioners from selling the ticket in the State or not. According to this Court, an examination of the matter is required in the light of threatened action against the petitioners as referred under Ext.P26. It may be appropriate to mention that, in the notice itself the petitioners were directed not to proceed further until compliance with statutory provisions. Therefore, this Court need to examine whether the petitioners need to comply with the direction in Ext.P26 or not. This Court hold that the cause of action is alive and writ petition needs consideration. 22. Point No
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Therefore, challenge on this ground must fail. 23. Point iii.- Whether the Government is justified using police power to interfere with the lottery business in the State through the officials under the Tax Department. The petitioners challenge Rule 56(20A)(d) of the Kerala State GST Rules. The petitioners' case is that Lotteries (Regulation) Act is a self contained Act and the Parliament alone is competent to legislate in respect of the offences for violation of Lotteries (Regulation) Act. The police power referred under Section 7 of Lotteries (Regulation) Act therefore, can be exercised only in accordance with the provisions under the Lotteries (Regulation) Act and the State has no power to legislate on such subject on which the Parliament alone has the power to legislate. It is pointed out that self assumed satisfaction of violations by the officials of the Department of Tax can in no way result in initiating action against the petitioners under the Lotteries (Regulation) Act. 24
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ect falls exclusively in the domain of the Parliament, the State cannot confer such power on any authority under the Kerala State GST to enter a satisfaction as to the violations of the Lotteries (Regulation) Act. Therefore, the above rule has to be struck down. 25. Lotteries (Regulation) Act deals with the manner in which violation of lottery will have to be dealt with. Section 8 of the Lotteries (Regulation) Act states that the offences under the said Act shall be cognizable and non bailable. Therefore, the police will have to enter a satisfaction as to the violation before proceeding against the offenders. The police cannot act merely based on the information given by the Tax officials. The police power in relation to the violation of the provisions of Lotteries Regulation can be exercised only in accordance with the Lotteries Regulation. The State's competency to legislate on the subject under the head 'Betting and Gambling' in Entry 34 of List II, Schedule VII of the C
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ope of public law remedy in the context of challenge made by the petitioners. It is apparent that the petitioners apprehend the registration granted to them under the Kerala State GST Act will be cancelled, if the petitioners fail to comply with such demand as made in Ext.P6. It is particularly to be noted that the petitioners were prevented from proceeding further until compliance as demanded in Ext.P26 is ensured. In regard to the first direction that the petitioners should prove that lottery to be held is in compliance with Section 3 & 4 of the Lotteries (Regulation) Act is beyond the authority of the Deputy Commissioner. The State is apparently making such demand based on its past experience with the State of Sikkim Lottery. The State highlighted that Sikkim Lottery showed the sale of 96 crores in a year as against actual sale of 3500 crores. It appears that the State Government moved the Central Government and the Central Government passed an order under Section 6 of Lotteries
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n lottery. The Rules are not intended to regulate the activities of lottery and it cannot also be so. The Rules cannot be interpreted in such a way to regulate the sale of lottery. If the Rules accorded interpretation to regulate lottery, certainly, it will amount to encroachment of the power of the Parliament to legislate. The Rules thus, can be interpreted only in such a way to sub serve its object under the GST Act and Rules. It is nothing but determination and collection of tax. Chapter VIII of Kerala State GST Act refers to maintenance of accounts and other records. Chapter IX refers to returns. The very purpose of these provisions is to ensure a complete assessment, as required under Chapter XII. The powers conferred upon the officials under Chapter XIV for inspection, search, seizure and arrest is to detect and prevent evasion of tax under the Kerala State GST Act. The Rules insisted to be complied will have to be interpreted keeping in mind the purpose for which it were formula
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by registered persons. The very object of such records is to complete assessment. The petitioners can highlight practical difficulties in keeping such records. For example, the petitioners highlight their grievances in relation to sub rule 19(g) & (i) to Rule 56. The petitioners gave explanation as follows in regard to their inability to maintain records for such requirement: (g) details of the prize winning tickets along with the amount of prize or prizes in respect of each draw, name and address of winners; These details would be maintained by the organizing state as the claims upto ₹ 10000 are lodged by the winners directly with the state and the final count of all the prizes would be available only with the organizing state. So also, the details of the name and address of the winners over ₹ 10000 are only with the organizing state in so far as ₹ 10000 is concerned which are distributed by the stockists or retailers down the line the count of the lottery ticke
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ed, tickets issued for sale, tickets sold, tickets which remain unsold at the time of the draw, and the prize winning tickets along with the amount of prize or prizes in respect of each draw, in the manner prescribed by the Organizing State. It is also the duty of the Organizing State to ensure that the proceeds of the sale of lottery tickets, as received from the distributors or selling agents or any other source, are deposited in the Public Ledger Account or in the Consolidated Fund of the Organizing State. [See Rule 3(17)]. 30. In regard to Rule 56(20A) of the Kerala State GST Rules, the petitioners also explained the manner in which the provisions can be complied. This Court, in fact, has already taken a view that 56(20A)(iii)(d) is beyond the rule making power of the Government under Kerala State GST regime. The petitioners gave an explanation as to the manner in which they can comply with other aspects covered by Rule 56(20A). The petitioners pointed out the practical difficulty
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es of sale of lotteries. In those circumstances, this Court has to decide the scope of interference for non compliance of maintaining records. Non compliance would not amount to contravention unless there is breach. Every non compliance is not a breach. There must be a breach that is to say, violation of legal obligation. If rules itself are determinative of such violation, no doubt an action can be initiated on noting such violation. If such Rules postulate an enquiry, no action can be initiated without holding an enquiry. In such cases, breach would come into existence only after the enquiry. The petitioners have explained reasons for their inability to maintain such records. These Rules in fact, are Rules for completing assessments if the petitioners are having valid reasons for not maintaining the records, that cannot even result in taking penal action against them. This Court therefore, is of the view that non compliance of maintaining records as referred in sub rule 19(g) & (
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idered when the petitioners are prevented from engaging in activities. The very object of such Rules is for proper assessment. Violation of Rules would depend upon satisfaction to be arrived in enquiry as to the compliance and non compliance. Rules adverted as above cannot be insisted as a pre condition to sell lottery tickets in the State. Therefore, compliance and non compliance would depend upon outcome of such enquiry. Rules as above are itself not determinative of violation. Such violation can be found out only after enquiry. Therefore, this Court is of the view that the petitioners should not be prevented from the sale of lottery for non compliance of Rules 56(19) and 56(20A) of the Kerala State GST Rules, in respect of which they have explained their practical difficulty in complying the same. In respect of the other Rules, the petitioners having expressed their willingness to comply the same in the writ petition itself, I need not advert to the consequence and non compliance of
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