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IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR. JUSTICE A.MUHAMED MUSTAQUE FRIDAY, THE 13TH DAY OF APRIL 2018 / 23RD CHAITHRA, 1940 WP(C).No. 27158 of 2017 -----------------PETITIONER(S) ------------1

M/S.TEESTA DISTRIBUTORS, HAVING ITS OFFICE AT T-19(D), PEACE VILLA, BESIDE PWD BUILDING, TUIKHUAHTLANG, AIZWAL - 796 001. AND PLACE OF BUSINESS IN THE STATE OF KERALA, AT XV 11/85, KANIYAMPUZHA ROAD, EROOR POST, TRIPUNITHURA, ERNAKULAM, REPRESENTED BY ITS AUTHORISED SIGNATORY MR.KAPIL KHANNA.

2

MR.KAPIL KHANNA, M/S. TEESTA DISTRIBUTORS, T-19 (D), PEACE VILLA, BESIDE PWD BUILDING, TUIKHUAHTLANG, AIZWAL - 796 001. BY SRI.N.VENKAT RAMAN, SENIOR ADVOCATE. ADVS.SRI.A.KUMAR, SRI.P.J.ANILKUMAR, SMT.MINI, SRI.P.S.SREE PRASAD.

RESPONDENT(S): --------------1.

STATE OF KERALA, REPRESENTED BY THE CHIEF SECRETARY, GOVERNMENT OF KERALA, GOVT. SECRETARIAT, THIRUVANANTHAPURAM - 695 001.

2.

GOVERNMENT OF KERALA, TAXES DEPARTMENT, REPRESENTED BY ITS SECRETARY - TAXES, THIRUVANANTHAPURAM - 695 001.

3.

GOVERNMENT OF KERALA, REPRESENTED BY ITS SECRETARY - HOME, THIRUVANANTHAPURAM- 695 001.

4.

COMMISSIONER, STATE GST, THIRUVANANTHAPURAM - 695 001.

5.

DEPUTY COMMISSIONER, STATE GST DEPARTMENT, KERALA, ERNAKULAM - 682 016.

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WP(C).No. 27158 of 2017 6.

DISTRICT POLICE CHIEF/SUPERINTENDENT OF POLICE, PALAKKAD - 679 001

7.

CIRCLE INSPECTOR OF POLICE, KASABA POLICE STATION, PALAKKAD - 679 001.

8.

SUB INSPECTOR OF POLICE, KASABA POLICE STATION, PALAKKAD - 679 001.

9.

THE DIRECTOR OF LOTTERIES, KERALA STATE LOTTERIES, THIRUVANANTHAPURAM - 695 001.

10.

THE DISTRICT LOTTERY OFFICER, PALAKKAD - 679 001.

11.

THE STATE OF MIZORAM, REPRESENTED BY ITS SECRETARY, FINANCE DEPARTMENT, GOVT. OF MIZORAM, AIZAWL - 796 001.

12.

THE DIRECTOR INSTITUTIONAL FINANCE AND STATE LOTTERY, MIZORAM, AIZAWL - 796 001. 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. THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 22/03/2018, THE COURT ON 13/04/2018 DELIVERED THE FOLLOWING:

rs.

13/04/2018.

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WP(C).No. 27158 of 2017 (T) APPENDIX PETITIONER'S EXHIBITS: EXHIBIT P1

A TRUE COPY OF THE AMENDED PARTNERSHIP DEED DATED 01.09.2012.

EXHIBIT P2

A COPY OF THE LOTTERIES (REGULATION) ACT, 1998.

EXHIBIT P3

A TRUE COPY OF LOTTERIES (REGULATION) RULES 2010.

EXHIBIT P4

A COPY OF MIZORAM LOTTERIES (REGULATION) RULES, 2011.

EXHIBIT P5

A TRUE COPY OF THE EXTENSION LETTER DATED 07.05.2015 ENCLOSING THE AGREEMENT.

EXHIBIT P6

A TRUE COPY OF THE AGREEMENT DATED 29.04.2015.

EXHIBIT P7

THE KERALA PAPER LOTTERIES (REGULATION) RULES 2011.

EXHIBIT P8

A COPY OF THE DIRECTION ISSUED U/S.10 VIDE COMMUNICATION DATED 02.08.2011 ISSUED BY THE GOVT. OF INDIA MINISTRY OF HOME AFFAIRS.

EXHIBIT P9

A MODEL AGREEMENT WHICH IS FORWARDED TO ALL CHIEF SECRETARIES OF THE STATE UNDER COVER OF LETTER DATED 28.12.2011.

EXHIBIT P10

A COPY OF THE NOTIFICATION DATED 13.07.2017.

EXHIBIT P11

A TRUE COPY OF THE INTIMATION GIVEN BY THE STATE OF MIZORAM TO STATE OF KERALA DATED 21.07.2017.

EXHIBIT P12

A COPY OF THE LIST OF MAIL IDS AS FOUND IN THE PORTAL OF THE GOVERNMENT OF KERALA IN KERALA.GOV.IN.

EXHIBIT P13

TRUE COPY OF THE MIZORAM STATE LOTTERY SCHEME DATED 11.07.2017.

EXHIBIT P14

TRUE COPY OF THE NOTIFICATION ISSUED BY THE GOVERNMENT OF MIZORAM DATED 24.07.2017.

EXHIBIT P15

COPY OF THE CLARIFICATION DATED 19.07.2017 ISSUED BY GOVERNMENT OF MIZORAM.

EXHIBIT P16

COPY OF THE CLARIFICATION PETITIONER DATED 24.07.2017.

EXHIBIT P17

A COPY OF THE RENEWAL OF RECOMMENDATION OF M/S NUTECH SECURITY PRINTERS DATED 28.03.2016.

GIVEN

BY

THE

....2/-

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WP(C).No. 27158 of 2017 (T) EXHIBIT P18

A TRUE COPY OF THE LETTER REQUESTING PRINTING OF LOTTERY TICKETS DATED 13.07.2017.

EXHIBIT P19

A COPY OF THE LETTER OF APPROVAL 14.07.2017 ALONG WITH COPIES OF THE SAMPLE OF TICKETS.

EXHIBIT P20

A COPY OF THE LETTER DATED 19.07.2017 DIRECTING THE PRINTER TO DELIVER THE TICKETS.

EXHIBIT P21

COPY OF THE RENT AGREEMENT DATED 06.07.2017 FOR THE PREMISES IN TRIPUNITHURA.

EXHIBIT P22

COPY OF THE RENT AGREEMENT DATED 19.07.2017 FOR THE PREMISES IN PALAKKAD.

EXHIBIT P23

COPY OF THE APPLICATION TO THE SUPERINTENDENT, KERALA DATED 19.07.2017.

EXHIBIT P24

TRUE COPY OF THE GST REGISTRATION CERTIFICATE.

EXHIBIT P25

THE COMPLETE SET OF DOCUMENTS OF TRANSPORT.

EXHIBIT P26

A COPY OF THE NOTICE DATED 28.07.2017 ISSUED BY THE DEPUTY COMMISSIONER, STATE GST.

EXHIBIT P27

A COPY OF THE PAPER PUBLICATION EFFECTED ON 31.07.2017 ANNOUNCING THE SALE OF THE LOTTERIES.

EXHIBIT P28

A TRUE COPY OF THE FIR DATED 29.07.2017.

EXHIBIT P29

A TRUE COPY OF THE REMAND REPORT.

EXHIBIT P30

THE NOTIFICATION SRO 470 OF 2017 BEING THE AMENDMENT OF DATED 27.07.2017 INSERTING RULE 56 (20A).

EXHIBIT P31

TRUE COPY OF THE REPLY OF THE PETITIONER NO. 1 FIRM DATED 29.07.2017.

EXHIBIT P32

TRUE COPY OF THE NOTIFICATION NO. 1/2017 -CENTRAL TAX (RATE) DATED 28.06.2017.

EXHIBIT P33

TRUE COPY OF NOTIFICATION NO. 2/2017 CENTRAL TAX (RATE) DATED 28.06.2017.

EXHIBIT P34

TRUE COPY OF THE NOTIFICATION NO. 4/2017 DATED 28.06.2017.

EXHIBIT P35

A COPY OF THE CLARIFICATION OF THE GOVERNMENT OF MIZORAM DATED 31.07.2017.

EXHIBIT P36

A COPY OF THE REPRESENTATION TO THE CENTRAL GOVERNMENT DATED 01.08.2017.

EXHIBIT P37

A COPY OF THE NOTIFICATION ISSUED BY THE GOVERNMENT OF MIZORAM DATED 02.08.2017.

GST

....3/-

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WP(C).No. 27158 of 2017 (T)

EXHIBIT P38

A TRUE COPY OF THE COMMUNICATION ISSUED BY THE LOTTERIES DIRECTOR.

EXHIBIT P39

A TRUE COPY OF THE REVISED NOTICE DATED 31/07/2017.

EXHIBIT P40

A TRUE COPY OF THE REPLY DATED 21/08/2017.

EXHIBIT P41

A TRUE COPY OF THE LETTER DATED 16/08/2017 OF THE MIZORAM GOVERNMENT TO PETITIONER.

EXHIBIT P42

A TRUE COPY OF THE LETTER DATED 28/07/2017 OF TAXES SECRETARY TO THE CHIEF SECRETARY, GOVERNMENT OF MIZORAM.

EXHIBIT P43

A TRUE COPY OF THE LETTER DATED 31/07/2017 OF TAXES SECRETARY TO THE CHIEF SECRETARY, GOVERNMENT OF MIZORAM.

EXHIBIT P44

A TRUE COPY OF THE LETTER DATED 02/08/2017 OF TAXES SECRETARY TO THE CHIEF SECRETARY, GOVERNMENT MIZORAM.

EXHIBIT P45

A TRUE COPY OF THE REPORT/REPLY OF 5TH RESPONDENT DATED 24/08/2017.

RESPONDENT'S EXHIBITS & ANNEXURES: ANNEXURE

COPY OF THE NOTIFICATION DATED 05/09/2017 PUBLISHED IN THE MIZORAM GAZETTE DATED 08/09/2017.

ANNEXURE 1

COPY OF THE NOTIFICATION NO.G 16016/5/2015/F.EST. ISSUED BY THE SECRETARY, GOVERNMENT OF MIZORAM DATED 05/09/2017.

EXT.R2A

COPY OF THE COMMUNICATION DATED 24/08/2017.

EXT.R2B

COPY OF THE GO(P) NO.87/2017/TD DATED 06/07/2017 WHICH IS NOTIFICATION UNDER R3(3) OF THE LOTTERIES (REGULATION) RULES, 2010 WITH REGARD TO ''POURNAMI WEEKLY LOTTERY'' WHOSE DRAW IS ON SUNDAYS.

EXT.R2C

COPY OF THE GO(P) NO.85/2017/TD DATED 06/07/2017 WHICH IS NOTIFICATION UNDER R3(3) OF THE LOTTERIES (REGULATION) RULES, 2010 WITH REGARD TO ''WIN WIN WEEKLY LOTTERY'' WHOSE DRAW IS ON MONDAYS.

EXT.R2D

COPY OF THE GO(P) NO.82/2017/TD DATED 06/07/2017 WHICH IS NOTIFICATION UNDER R3(3) OF THE LOTTERIES (REGULATION) RULES, 2010 WITH REGARD TO ''STHREESAKTHI WEEKLY LOTTERY'' WHOSE DRAW IS ON TUESDAYS.

EXT.R2E

COPY OF THE LETTER ISSUED BY THE 2ND RESPONDENT TO THE JOINT SECRETARY (CENTRE-STATE), MINISTRY OF HOME AFFAIRS, GOVERNMENT OF INDIA, NEW DELHI.

EXT.R2F

COPY OF THE REPLY GIVEN BY THE 2ND RESPONDENT TO EXT.P36 LETTER. ...4/-

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WP(C).No. 27158 of 2017 (T)

EXT.R11A

COPY OF THE NOTIFICATION DATED 13/07/2017 ISSUED BY THE 11TH RESPONDENT.

EXT.R11B

COPY OF THE NOTIFICATION DATED 24/07/2017 ISSUED BY THE 11TH RESPONDENT.

EXT.R11C

COPY OF THE LETTER DATED 21/07/2017 REGARDING MARKETING OF MIZORAM STATE LOTTERIES IN THE STATE OF KERALA ADDRESSED TO CHIEF SECRETARY GOVT. OF KERALA.

EXT.R11D

COPY OF THE TRACK CONSIGNMENT OF POSTAL COMMUNICATION.

EXT.R11E

COPY OF THE E-MAIL COMMUNICATION AND SCREEN SHOT DATED 24/07/2017.

EXT.R11F

COPY OF THE DELIVERY INSTRUCTION GIVEN BY RESPONDENT NO.12 ON 28/07/2017 TO THE DEPUTY RESIDENT COMMISSIONER, MIZORAM HOUSE, BENGALURU.

EXT.R11G

COPY OF THE NOTIFICATION DATED 05/09/2017 OF THE 11TH RESPONDENT.

EXT.R11H

COPY OF THE NOTIFICATION DATED 28/11/2017 OF THE 11TH RESPONDENT. //TRUE COPY// P.S. TO JUDGE

rs.

13/04/2018.

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“C.R.” A.MUHAMED MUSTAQUE, J. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ W.P.(C).No.27158/2017 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Dated this the 13th day of April, 2018 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. petitioner

is

a

distributor

The first

of

lottery,

organised and conducted by the Government of Mizoram.

In this writ petition, the

petitioners highlight grievance regarding interference

of

sale

of

tickets

by

the

Government of Kerala, using police power and also using the authority of officials

WPC 27158/2017 -:2:-

under the Kerala State Goods and Services Tax

Act,

State

2017

GST

(for

Act”).

short,

Apart

the

from

“Kerala

challenging

the action as above, the petitioners also have

challenged

certain

rules

in

the

Kerala State Goods and Services Tax Rules, 2017

(for

short,

the

“Kerala

State

GST

Rules”) on a premise that these rules are colourable

exercise

legislation

to

of

interfere

delegated

with

rightful

conduct of lottery business in the State. 3.Brief accounts of facts involved in the case are as follows: The first petitioner firm is a partnership firm.

The

second

authorised

petitioner

signatory

petitioner-partnership

of

is

the

firm.

The

the first first

petitioner was appointed by the State of Mizoram

as

a

selling

State lottery. notification Section

4

of

agent

of

Mizoram

The Mizoram State issued a on the

13.7.2017 Lotteries

in

terms

of

(Regulation)

WPC 27158/2017 -:3:-

Act,

1998

read

with

Rule

3(3)

of

the

Lotteries (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

Mizoram

of

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.

WPC 27158/2017 -:4:-

However, this notification was superseded by

another

and

notification

published,

which

dated is

24.7.2017

evident

from

Ext.P14. This was owing to the reason that notification mistake

as

dated it

13.7.2017

was

carried

mentioned

that

a the

notification was forwarded to West Bengal instead

of

Kerala.

petitioners,

the

According lotteries

to

the

were

also

printed and supplied by State of Mizoram after and

complying the

with

the

security

norms

Government

of

Mizoram

made

arrangements to deliver the tickets to the petitioners

in

specifically notification

the

State.

pleaded dated

It

that

is

Ext.P14

24.7.2017

was

also

addressed to the State of Kerala. 4.The

first

petitioner

Registration

also

Certificate

obtained

from

the

GST

Union

Government and the Government of Kerala. An officer of Mizoram Government delivered the

tickets

to

the

petitioners

on

WPC 27158/2017 -:5:-

26.7.2017.

This

was

accompanied

documents for movement of goods.

by

These

tickets were for the period of draw to be held from 7.8.2017 to 13.8.2017. 5.

It is to be noted that under Rule 3 of Lotteries

(Regulation)

Rules,

the

organizing State shall in advance, by a notification, provide information 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

(Regulation)

4(h)

Act

no

of

the

lottery

more than one draw in a week.

Lotteries shall

have

The Mizoram

lottery introduced in the State of Kerala consists

of

different

lotteries

draw from Monday to Sunday.

having

That means,

different sets of lotteries are organised for sale each day.

WPC 27158/2017 -:6:-

7.On 28/7/2017, the petitioners were served with

a

notice

Deputy

(Ext.P26)

Commissioner

of

issued State

by Goods

the &

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 provided under Rule 56(19), 56(20) of the The Kerala Goods and Services Tax Rules, 2017. 3. You are also required to comply the conditions put forth in Rule (20A) of The Kerala Goods and Services Tax Rules, 2017.”

On the same day, the police came to the godown of the first petitioner and seized several

goods

including

lottery

tickets.

An FIR was registered on 29.07.2017 by the Palakkad allege

Kasaba

that

the

Police. Deputy

The

petitioners

Commissioner

by

WPC 27158/2017 -:7:-

colluding

with

the

Police

effected

such

seizure. 8.

As

seen

from

the

pleadings,

the

Deputy

Commissioner assumed that the lottery to be held was in violation of the Lotteries (Regulation)

Act

and

Rules,

and

the

petitioners having not complied with the formalities

of

certain

provisions

under

the Rules cannot sell such lottery in the State. As seen from the challenge made to certain rules, which I shall advert in the later part of this judgment, the Deputy Commissioner appears to have moved against the petitioners based on the Rules to come to a 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

WPC 27158/2017 -:8:-

Commissioner directing them to comply with the

matters

mentioned

notice is Ext.P26. writ

petition

therein.

This

The dispute in this

essentially

validity

of

the

rules

exercised

by

the

Deputy

rests and

on

the

the

power

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

provisions against

of

the

lotteries

as

not the

entitled

to

Kerala

State

petitioners the

sale

invoke

for

of

the

GST

Act

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

are

Therefore,

in it

is

two

different

argued

that

States.

the

State

officials cannot take any action against the petitioners.

WPC 27158/2017 -:9:-

The

10.

action

State

Government

pointing

out

defended

the

their

irregularities

detected. The State, particularly, pointed out that the notification was issued only on

24.7.2017

27.7.2017 the

and

and

it

tickets

distributor

was

published

on

were

delivered

to

on

26.7.2017,

demonstrate

illegality.

pointed

that

out

notification to

keep

State

the

dated

lottery on

Mizoram

2.8.2017

to

hold

It

be and

was

to also

State,

have

marketed

by

decided in

the

thereafter,

by

notification dated 5.9.2017 [Ext.R11(g)], the

Mizoram

Government

cancelled

the

lottery scheme introduced in the State of Kerala and therefore, there is no cause of action

for

the

petitioners

to

approach

this Court. 11. of

By referring to the various instances violations,

contention

that

the

State the

had

lottery

taken

a

scheme

notified by the State of Mizoram and the

WPC 27158/2017 -:10:-

sale

of

would

tickets

attract

Lotteries

the

penal

also

being

Mizoram

Nos.80

the

State

Kerala of

the

Act.

suspect

sold

of

provisions

(Regulation)

Government tickets

in

The

unauthorised

without

knowledge

State.

It

pointed

of

lottery

lakhs

is

tickets

of out 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 for

to

sale

money.

demonstrate

has It

no

is

match

further

that

the

with

gross

pointed

revenue

out

price 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

WPC 27158/2017 -:11:-

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 challenge action and rules under the Kerala State GST Act. 12.

The

petitioners

though

made

several

challenges in regard to the various rules, Kerala

State

GST

Rules,

at

the

time

of

argument they confined their challenge to Rules

56(19)

and

56(20A).

Rule

56(19)

provides as follows: “56(19) Notwithstanding anything contained in this Rules, every agent or distributor selling lottery tickets in the State, shall keep the following records relating to the lotteries sold/intended to be sold in the State with respect to each draw, such as,(a) Notification issued under Sub-Rule (3) and (4) of Rule 3 of the Lotteries (Regulation) Rules, 2010 with respect to the lottery and draw; (b) Agreements or contract showing the valid appointment of distributors or selling agents by the organizing State, with respect to the lotteries sold by them;

WPC 27158/2017 -:12:(c) The number of the tickets received from the organizing State for sale; (d) The tickets issued for sale; (e) The tickets sold, (f) Tickets which remain unsold at the 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, regarding the lottery

WPC 27158/2017 -:13:tickets supplied by them and the procedure to be adopted for verification as specified hereunder(i) He shall submit on the first day of every month and, if the first day being a holiday, on the immediate next working day, the Statement as provided in the ANNEXURE relating to the draws of lotteries to be conducted during the month commencing from the next succeeding month which are intended to be sold in the State; (ii) The organizing State or their distributor or selling agent shall file the details regarding unsold ticket particulars and produce the unsold lottery tickets before the same authority who have verified while bringing the lottery tickets for sale in the State within forty eight hours after the lottery draw (iii) The procedure of verification of information return is as specified below: (a) The tickets for which the details in Annexures filed shall be produced 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, 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

WPC 27158/2017 -:14: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 there uner, 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 fo the said Act.”

14.

The petitioners would contend that the

Rules as above are ultra vires and liable to

be

struck

down

as

unenforcible.

According to the petitioners, these rules are made by encroaching upon power of the Union Government under Entry 40 of List I, Schedule VII of the Constitution.

These

rules, in fact, intend to prohibit sale of

WPC 27158/2017 -:15:-

lottery in the State and not to sub-serve any Act.

purpose

under

Therefore,

the

these

Kerala

State

rules

have

GST been

included as a colourable exercise of power and beyond the scope of Article 246-A of the Constitution. 15.

The Government defended these Rules by

contending that these rules were made for proper assessment of levy of GST. submitted assessment

that

for

of

GST,

fair these

and

It was complete

rules

are

necessary. 16.

On application of IGST, this Court is

called upon to decide whether there is an infraction on the right of the petitioners to carryout legitimate business in lottery of the State of Mizoram in the context of Ext.P26 issued by the Deputy Commissioner 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

WPC 27158/2017 -:16:-

Kerala State GST Act, this Court cannot decide such issues without the same being considered

by

a

primary

issued such notices. court

was

decide need

addressed

certain to

be

authority

which

Merely because this and

called

issues,

which

considered

by

upon

to

primarily a

primary

authority, as the court's jurisdiction on such

matters

judicial from

can

be

review,

the

pre-empting

the

deciding

the

petitioners.

matter

exercised court

must

primary after

Therefore,

only

resist

authority

hearing the

by

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 will have to be left open.

The petitioners are free to

WPC 27158/2017 -:17:-

submit to the jurisdiction of the Deputy Commissioner and raise objection. It is to be

also

noted

challenge Kerala

the

State

that

the

Rules GST

petitioners

framed

Act.

under

the

Therefore,

the

petitioners have no clear idea as to the regime that would apply to them.

In such

circumstances, this Court cannot consider the

question

whether

IGST

alone

is

applicable to the transaction. 17.

The matter also require consideration

as to the extent of using police power by the

officials

of

the

Government

for

interfering with the lottery business. A point also need to be examined whether the petitioners require to comply with all the directions in Ext.P26 for the purpose of carrying further business. A question also to

be

considered

petitioners action

to

are

having

challenge

respondents.

is

The

a

the

whether live

the

cause

actions

petitioners

of

of the

have

WPC 27158/2017 -:18:-

challenged vires of certain provisions in the context of Ext.P26. Therefore, in such circumstances 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

Ext.P26

would

Government

had

and arise an

consideration only

intention

sale of lottery in the State. Senior the

Counsel

Ext.R11(g)

particularly produced

if

of

Mizoram

to

conduct

The learned referred

along

with

to the

counter affidavit filed on behalf of the State

of

lottery

Mizoram introduced

and in

submits the

that State

withdrawn with immediate effect.

the was

It is

WPC 27158/2017 -:19:-

pointed

out

published

that

this

through

notification

Gazette.

The

was

learned

Senior Counsel further pointed out that, the

notification

notification

on

issued,

cancelling

28.11.2017

what was repealed.

cannot

that

revive

The learned counsel

particulary referred Section 6(a) of the General Clauses Act and argued that repeal does not revive anything not in force or existing

at

the

time

of

appeal

and

therefore, what was repealed on 5.9.2017 cannot

be

resurrected

by

another

notification 28.11.2017. 19. not

It is to be noted that this court is entering

into

validity

of

the

notification issued but on the otherhand deciding an issue based on the right of petitioners

which

is

threatened

by

appearing

for

Ext.P26. 20.

The

Senior

Counsel

Mizoram

Government

Mizoram

Government

reiterated want

to

that

the

sell

the

WPC 27158/2017 -:20:-

lotteries

in

Government

this also

State.

The

Mizoram

issued

notification

cancelling earlier notification. 21.

The

argument

raised

by

the

learned

Senior Counsel for the Mizoram Government that what was repealed cannot be revived by

cancelling

earlier

notification

withdrawing the introduction of lottery in the

State

will

not

hold

good.

If

the

Government is having the power to withdraw the notification, it also has the power to cancel

such

decision.

That

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,

Considering Government

the that

if

stand they

so of

want

warranted. the

to

Mizoram sell

the

lottery tickets in Kerala, the question on the

cause

of

action

also

has

to

considered based on Ext.P26 as well. question

is

whether

Ext.P26

poses

be That any

WPC 27158/2017 -:21:-

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. mention

that,

It may be appropriate to 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.ii.-- On challenges in regard

to vires of the Rules: The

petitioners

Rules as well.

challenge

vires

of

the

The main challenge is in

regard to sub rule (g) and (i) to Rule 56(19) and also to sub rule (d) of Rule 56(20A)

of

the

Kerala

State

GST

Rules.

WPC 27158/2017 -:22:-

This Court propose to deal with sub rule (d) of Rule 56(20A) while considering the issue of exercise of police power. petitioners' (i)

on

cannot records

challenge

the

ground

be

directed

as

those

Rule

that

56(19)(g)

the

to

&

petitioners

maintain

matters

The

are

such

to

be

maintained by the Organizing State.

Any

vires of the Rules can be challenged only on certain grounds, such as, if the Rules are repugnant to the Parent Statute, the Rules making

are

beyond

the

authority,

power

the

of

Rules

the are

Rule an

excessive delegation of power, the Rules are in the nature of essential legislative power

etc.

The

therefore, before

is

the

compliance

is

a

practical matter

authority required

of to to

difficulty explanation whom

be

such

reported.

Therefore, challenge on this ground must fail.

WPC 27158/2017 -:23:-

23.

Point iii.-- Whether the Government is

justified using police power to interfere with

the

through

lottery the

business

officials

in

the

under

State

the

Tax

Department. The petitioners challenge Rule 56(20A)(d) of

the

Kerala

petitioners'

State

case

GST

is

Rules.

that

The

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

(Regulation) power

to

Act

under and

legislate

the

the

on

Lotteries

State

such

has

no

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

WPC 27158/2017 -:24:-

no way result in initiating action against the

petitioners

under

the

Lotteries

(Regulation) Act. 24.

It is to be noted that Rule 56(20A)(d)

refers

to

authority

satisfaction as

to

the

entered

by

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 Kerala

one

more

State

GST

authority Rules

under to

the

enter

satisfaction as to the violations of the lottery.

The Indian Constitution do not

recognise Therefore, source

police the

of

power

police

power

power

to

as

such.

depend

legislate.

upon In

Synthetics & Chemicals Ltd. v. State of U.P. And others [AIR 1990 SC 1927] Hon'ble Supreme Court categorically that

concept

of

police

power

was

the held not

accepted in India as an independent power but was recognised as a part of the power

WPC 27158/2017 -:25:-

of the State Legislature with respect to the matters enumerated in the State and Concurrent List subject to constitutional limitation.

Therefore,

the

State

would

have the power depend upon the competency to

legislate

on

the

subject.

Since

lottery subject 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. the

police

satisfaction proceeding

will as

to

against

have the the

to

Therefore, enter

violation

a

before

offenders.

The

WPC 27158/2017 -:26:-

police

cannot

information The

act

given

police

merely by

power

based

the

in

Tax

on

the

officials.

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 Constitution cannot empower the police officials or the tax officials to declare the lottery organised by the State of

Mizoram

as

illegal

and

to

interfere

with such business of the petitioners.

In

H.Anraj and others v. State of Maharashtra [(1984) Court

2

had

SCC

292]

taken

a

the view

Hon'ble that

Supreme

the

State

Legislature is not empowered to legislate to

interfere

ban

on

sale

of

lottery

tickets of other states stating that such lottery are sold not in conformity with Lotteries (Regulation) Act.

Therefore, by

WPC 27158/2017 -:27:-

executive action or by legislative action, sale of other State lotteries cannot be interfered

by

the

State

except

in

accordance with the Lotteries (Regulation) Act. 26. by

Point No.IV.--On scope of interference the

Tax

invoking GST

officials

provisions

Act.

Ext.P26,

The

of

of

the

compliance provisions.

Kerala

referring

mentioned of

Government

petitioners

particularly

stipulations

the

State

challenge to

therein

certain

the for

statutory

The Court has to decide what

is the scope of public law remedy in the context

of

petitioners. petitioners

challenge It

is

apprehend

made

apparent the

by

the

that

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

WPC 27158/2017 -:28:-

proceeding

further

until

compliance

demanded in Ext.P26 is ensured. to

the

first

direction

as

In regard that

the

petitioners should prove that lottery to be held is in compliance with Section 3 & 4

of

the

beyond

Lotteries

the

authority

Commissioner. making

(Regulation)

such

The

State

demand with

the

Lottery.

The

State

Lottery

the is

based

experience

Sikkim

of

showed

Act

on

State

Deputy

apparently its of

past Sikkim

highlighted the

is

sale

that of

96

crores in a year as against actual sale of 3500 crores. Government

It appears that the State

moved

the

Central

Government

and the Central Government passed an order under Section 6 of

Lotteries (Regulation)

Act prohibiting such lottery. In a federal set up, one State cannot frown upon and decide the legitimacy of lottery of other State.

Federalism

co-operation.

works

on

mutual

If there is any violation

WPC 27158/2017 -:29:-

of

Lotteries (Regulation) Act, the State

in fact, is raising a complaint against other can

State. be

Therefore,

dealt

only

such

by

complaint

the

Central

Government and not by the State itself. The State Government or its officials are not the authority to decide that lottery conducted

by

compliance

other

State

with

is

the

not

in

Lotteries

(Regulation) Act. The challenge to other provisions will have to be considered in the

light

Ext.P26.

of

The

the

directions

petitioners

were

given

in

restrained

from proceeding further without furnishing details

as

provided

under

Rule

56(19),

56(20) and 56(20A) of the Kerala State GST Rules, 2017. 27. the with

The point to be considered is whether petitioners other

are

required

directions

in

to

comply

Ext.P26

for

proceeding with the business in lottery. The Rules are not intended to regulate the

WPC 27158/2017 -:30:-

activities of lottery and it cannot also be so. The Rules cannot be interpreted in such

a

way

lottery.

to

If

regulate the

interpretation

to

the

sale

Rules

of

accorded

regulate

lottery,

certainly, it will amount to encroachment of

the

power

of

the

legislate.

The

Rules

interpreted

only

in

serve

its

Rules.

object

Parliament thus,

such

under

a

the

way GST

to

can

be

to

sub

Act

and

It is nothing but determination

and collection of tax.

Chapter VIII of

Kerala State GST Act refers to maintenance of accounts and other records. refers to returns.

Chapter IX

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

WPC 27158/2017 -:31:-

complied

will

have

to

be

interpreted

keeping in mind the purpose for which it were formulated.

Chapter VII of Kerala

State GST Rules refers to maintenance of accounts by registered persons. Rules as above are framed under Chapter VII under the

head

“Accounts

and

Records”.

The

Rules refers to the maintenance of records by a registered person.

Thus, it can be

seen that rules are framed for a fair and complete services

assessment provided

of

by

the

the

goods

or

assessee.

In

regard to Rule 56(19) of the Kerala State GST Rules, in the writ petition itself, the

petitioners

willingness manner

to

comply

referred

56(19)(g)

&

challenge

sub

annexure

to

expressed

therein

(i). Rule the

the

their

rules

a

to

Rule

The

petitioners

also

20A

to

above

except

in

sub

Rule rule.

56

and The

petitioners point out that in the annexure to sub rule 20A of Rule 56, they have been

WPC 27158/2017 -:32:-

asked

to

maintain

records

regarding

percentage of distribution of face value for

price

and

commission,

tax

administration expenses etc. 28.

Chapter VII of the Kerala State GST

Rules

only

refers

about

maintenance

of

accounts by registered persons. The very object

of

such

records

is

to

complete

assessment. The petitioners can highlight practical records.

difficulties For

example,

in

keeping

the

such

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

These details would be maintained by the organising state as the claims upto Rs 10000 are lodged by the winners directly with the state and the final count of all the prizes would be available only with the

WPC 27158/2017 -:33:of winners;

(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

organizing state. So also, the details of the name and address of the winners over Rs 10000 are only with the organizing state in so far as Rs 10000 is concerned which are distributed by the stockists or retailers down the line the count of the lottery tickets with sl. Nos and prize amount can be furnished but the address is not normally available as the layman claiming it would not be interested in furnishing his particulars. Payment is made into the account nominated by the govt of Mizoram through the director of institutional finance. Transfer of funds is only through banks by mode of RTGS only. Hence distributors bank statement being remittances made on the invoice raised by the state of Mizoram in terms of the agreement. The payments to the state of Mizoram have to work out as per the agreement with the distributor.

WPC 27158/2017 -:34:verification by any authority under this Ordinance.

29.

It

is

to

be

noted

that

under

Rule

3(16) of Lotteries (Regulation) Rules, the Organizing State shall keep the records of the

tickets

printed,

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)].

WPC 27158/2017 -:35:-

30.

In

Kerala also

regard State

to GST

explained

Rule

56(20A)

Rules,

the

the

manner

fact,

has

already

the

petitioners

in

provisions can be complied. in

of

which

the

This Court,

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 in complying Rule 56(20A)(II) within 48 hours.

Explanation

as above, certainly, is meritorious. Court

cannot

explanation.

brush How

far

aside an

such

action

can

The an be

initiated for non compliance is a vexing question to be decided by this Court.

The

petitioners also challenge Annexure under sub rule 20A of Rule 56 to the extend the petitioners records

were

showing

directed the

to

maintain

percentage

of

WPC 27158/2017 -:36:-

distribution of face value for price and commission,

tax,

administration

expenses

etc. 31.

Relevant

the

Rules

threatened

Ext.P26. officials

action

The to

are

power seize

challenged

under

initiated

under

is goods

evasion of tax is suspected.

conferred

on

articles

if

The exercise

of this power is a point to be considered as a consequence of non compliance.

This

Court, in fact, is considering this issue when the petitioners' activities have come to a halt consequent upon Ext.P26.

The

State also insisted that the petitioners need to maintain such records for carrying out the activities of sale of lotteries. In those circumstances, this Court has to decide the scope of interference for non compliance

of

compliance

would

contravention Every

non

maintaining

unless

compliance

records.

Non

amount

to

not there is

not

is

breach.

a

breach.

WPC 27158/2017 -:37:-

There must be a breach that is to say, violation of legal obligation. itself

are

violation,

If rules

determinative

no

doubt

an

of

action

such can

initiated on noting such violation.

be If

such Rules postulate an enquiry, no action can

be

initiated

enquiry. into

without

holding

an

In such cases, breach would come

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

them.

This

view

that

taking Court

non

penal

action

therefore,

compliance

of

is

against of

the

maintaining

records as referred in sub rule 19(g) & (i) of Rule 56 of the Kerala State GST Rules can be subject matter of enquiry in assessment

proceedings

or

in

other

WPC 27158/2017 -:38:-

proceedings

and

cannot

be

a

reason

to

prevent the petitioners from engaging sale of

lotteries

in

the

State.

The

petitioners also cannot be prevented from engaging in the sale of lottery for not furnishing details regarding unsold ticket particulars within 48 hours. of

the

petitioners

in

Explanation

each

of

such

occasions will have to be considered by the officials.

Similarly, the petitioners

also

be

cannot

information regard

to

in the

directed

return

to

percentage

to Annexure

of

file in

commission

they receive. The petitioners are having every right to withhold such information. No

action

furnishing percentage

can of of

be

initiated

such

details

commission

for

non

regarding received.

Percentage of commission has no nexus to the levy of tax to be collected from the petitioners.

WPC 27158/2017 -:39:-

32.

As

already

adverted,

compliance

and

non compliance of the Rules in the context have been considered when the petitioners are prevented from engaging in activities. The

very

proper would

object

of

such

assessment. depend

Rules

Violation

upon

is

of

satisfaction

for

Rules to

be

arrived in enquiry as to the compliance and

non

above

compliance.

cannot

be

Rules insisted

adverted as

a

as pre

condition to sell lottery tickets in the State. compliance

Therefore, would

compliance

depend

upon

and

non

outcome

of

such enquiry. Rules as above are itself not

determinative be

of

violation.

found

out

only

Such

violation

can

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

WPC 27158/2017 -:40:-

difficulty respect

in

complying

of

the

petitioners

the

other

having

same.

In

Rules,

expressed

the their

willingness to comply the same in the writ petition itself, I need not advert to the consequence

and

non

compliance

of

such

Rules. 33.

Point No.V.--On validity of Ext.P26.

In the light of the discussions as above, Ext.P26 will have to be interfered with. Compliance

and

non

compliance

of

Rules

56(19) and 56(20A) would depend upon the satisfaction to be arrived in appropriate enquiry

in

assessment

or

in

other

proceedings. 34.

Therefore,

the

writ

petition

is

disposed with the following directions: I. Rule 56(20A)(iii)(d) of the Kerala State

GST

that

the

Rules State

is

struck has

no

down

holding

legislative

competence to formulate such Rule.

WPC 27158/2017 -:41:-

(II) The challenge to the vires of other Rules is negatived. (III) It is declared that the officials under the Tax Department have no power to enter into satisfaction as to whether the lottery was conducted in compliance with the Lotteries (Regulation) Act or not. (IV) Ext.P26 is quashed to the extent forbearing the petitioners from proceeding further with the sale of lottery. (V) objection

If

the

before

petitioners

the

Deputy

raise

an

Commissioner

of State Goods & Services Tax Department, Kerala,

questioning

the

jurisdiction

of

the officials under the Kerala State GST Act

and

Rules,

considered

that

within

question one

shall

month

be

after

affording an opportunity of hearing. Sd/-

A.MUHAMED MUSTAQUE, J. ms