TaxTMI 
TaxTMI 
2015 (10) TMI 2756
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.... as Sales Tax, VAT and other charges levied by various states on lotteries. Lottery tickets are sold by the State of Mizoram both within and outside in other states including the state of Sikkim which is the Respondent No.2. 2. It is stated that the Lotteries (Regulation) Act, 1998 (hereinafter referred to as "Central Act") was enacted by the Parliament under Entry 40 of List-1 of the Seventh Schedule of the Indian Constitution. Entry 40 in List-1 is an administrative/regulatory entry providing for the regulation of lotteries organised by the Government of India or the Government of a State. Under Section 4 of the Act, the conditions to be followed by any State Government seeking to organise, conduct and promote lotteries are prescribed. Section 5 vests the State Government with the power to prohibit within the state, the lotteries conducted by another state. Section 6 empowers the Central Government to prohibit lotteries organised by any State. Section 7 of the Act is a penal provision and provides for the imposition of penalty on lotteries conducted in the contravention of any of the provisions of the Act. Section 8 of the Act provides that offences under the Act would be cogn....
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....ay all State taxes, licence fees and other charges as imposed by the states from time to time. By another contract agreement entered into with M/s Future Gaming Solutions India Pvt. Ltd., the Petitioner, M/s Shubh Enterprises, was allowed as a promoter to sell lottery tickets in all states where lotteries are permitted. Clause 2(c) of the said agreement renders the Petitioner liable for the payment of state and central taxes imposed by law from time to time. It is thus stated that the incidence of the charge imposed by the impugned Notification falls on the Petitioner. 6. The first ground set up for assailing Rule 3(11) of the Lotteries (Regulation) Rules, 2010 is that the amount charged on the draw cannot be levied on the draws conducted in the state of Mizoram. There is no provision in the Lotteries (Regulation) Act, 1998 prescribing the levy of any tax, fee or charge. 7. It is contended that Entry-40 of List-1 is an administrative entry that provides for the regulation of lotteries conducted both by the Centre and the State. The Lotteries (Regulation) Act, 1998 was enacted by the Parliament taking recourse to entry 40 of List-1. There is no provision in the Act for the lev....
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.... of lottery tickets for which the draw is conducted in the state of Mizoram. While sale of lottery of tickets is not being subjected to any charge, it is the draw conducted outside territory of the state that is being charged instead. It is asserted that there is no connection between the event of daw in Mizoram and the sale of tickets in Sikkim. That, the sale of tickets has no reasonable nexus between the charge imposed by the Respondent State and the draw conducted outside the State of Sikkim. In support this contention reliance was placed on the Judgment of State of Rajasthan vs. Rajasthan Chemists Association : 2006 (202) ELT 217 (SC) and Lokmanya Mills Barsi Ltd. vs. Barsi Borough Municipality : AIR 1961 SC 1358. 13. It is then contended, even if it is assumed that the charge imposed in the present case is actually on the sale of tickets, then it is actually a sales tax on the sale of lottery tickets in the garb of a charge on the draw when imposition of sale sales tax is not permissible following the decision in Sunrise Associates vs. Govt. of NCT Delhi : (2004) 5 SCC 603. The case of Manunatha Agency vs. State of Karnataka: W.A. 2131-2132/2007 was also referred to whe....
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....ousand) per draw from the organising State in respect of lotteries of other States sold within State of Sikkim. 18. It is stated that the Acts are intentions of law governing provisions of fees, penalties and the way it is applied. The rules are made to carry out the provisions of the concerned Act. It is asserted that lotteries organised by the government of India or the states is a matter falling under the union list at Entry 40 of List 1 of the Seventh Schedule to the Constitution. 19. Apart from the above, nothing further of substance have been stated other than contending that the grounds set out in the Writ Petition being matters of interpretation of law, necessary submissions would be made at the time of hearing. 20. The counter affidavit filed on behalf of the State of Sikkim and the Director of Sikkim State Lotteries Respondents No. 2 and 3 respectively reiterate the same assertions made in the counter affidavit filed on behalf of Respondent No.1. 21. During the course of the arguments Mr. A. Madhav Rao, Learned Counsel appearing on behalf of the Petitioner, re-emphasised what have been set out in the Writ Petition which have been dealt with in detail earlier. ....
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....would also refer to the decision of M/s Future Gaming Solutions India Pvt. Ltd. vs. Union of India (supra) on the legal proposition that power to tax is not an incidental power and that under the residuary power the Parliament will be entitled to impose tax only if that power is not specifically vested in the State Legislature by any entry in List II of the Seventh Schedule. We may re-produce the following passage referred to by him:- "(II) ........................................................ "(t) It is also settled legal position that where the entries under different Lists empower the respective Legislatures to enact law on any subject-matter and the question arises regarding the legislative competence of the legislative bodies, the doctrine of pith and substance is to be applied to find out the real intention of the legislative entry and the object of enacting a law. As observed in State of West Bengal v. Kesoram Industries Ltd.(supra) [2004] 266 ITR 721 (SC) : [2004] 10 SCC 201, if any law enacted by Parliament is not traceable to any legislative entry in List II or List III, it is irrelevant whether the power of the Parliament is traceable to a specific e....
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....otification suffers from the vice of extra territorial operation since draws taking place in the state of Mizoram is being charged by the state of Sikkim only because of the sale of lottery tickets. The impugned Notification would also be violative to Article 245 of the Constitution. 25. For the aforesaid reasons, it was the submissions of the Learned Counsel that the impugned Rule 3(11) and the impugned Notification were ultra vires deserving to be struck down. 26. Mr. Kaushik Chanda, Learned Additional Solicitor General, appearing on behalf of the Respondent No.1, in his argument submitted that the Petitioner has proceeded on the premises that the charge prescribed under the impugned Rule is a tax which as per him was erroneous when actually it was in the nature of fees. The fee is regulatory in nature and the power to levy that is traced to entry 96 of List 1 of the Seventh Schedule to the Constitution of India and not the Lotteries (Regulation) Act, 1998. The authorities cited on behalf of the Petitioner, as per him, deal with state laws but in the present case it is a Parliamentary Law that is involved. The object of the Lotteries (Regulation) Act, 1998 is to regulate wh....
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....hus, the nature of the impost is not merely compulsory exaction of money to augment the revenue of the State but its true object is to regulate, control, manage and encourage the sport of horse racing as is distinctly spelled out in the Act and the 1985 Rules. For the purpose of enforcement, wide powers are conferred on various authorities to enable them to supervise, regulate and monitor the activities relating to the racecourse with a view to secure proper enforcement of the provisions. Therefore, by applying the principles laid down in the aforesaid decisions, it is clear that the said levy is a "fee" and not a "tax". 36. The appellants have also challenged the nature of the impost, as according to them it is a tax imposed under the guise of a fee, since there is no quid pro quo or any broad correlation between the impost and the services rendered in return, rather, there is no service in return at all. While it is true that "quid pro quo" is one of the determining factors that sets apart "tax" from a "fee" but the concept of quid pro quo requires to be understood in its proper perspective. It can be traced back to the decision of this Court in Sreenivasa General Trader....
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....s or want of consent. A levy in the nature of a fee does not cease to be of that character merely because there is an element of compulsion or coerciveness present in it, nor is it a postulate of a fee that it must have direct relation to the actual service rendered by the authority to each individual who obtains the benefit of the service. It is now increasingly realised that merely because the collections for the services rendered or grant of a privilege or licence are taken to the consolidated fund of the State and not separately appropriated towards the expenditure for rendering the service is not by itself decisive. Presumably, the attention of the Court in Shirur Mutt case [AIR 1954 SC 282 : 1954 SCR 1005] was not drawn to Article 266 of the constitution. The Constitution nowhere contemplates it to be an essential element of fee that it should be credited to a separate fund and not to the consolidated fund. It is also increasingly realised that the element of quid pro quo in the strict sense is not always a sine qua non for a fee. It is needless to stress that the element of quid pro quo is not necessarily absent in every tax..." "7. It is not always possible to work....
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....... 43. ........ Hence, in our opinion, the licence fee imposed in the present case is a regulatory fee and need not necessarily entail rendition of specific services in return but at the same time should not be excessive.............................................................." 27. It is thus contended that the submissions made on behalf of the Petitioner was fallacious and, therefore, the Writ Petition deserved to be dismissed. 28. We have carefully considered the rival contentions, the pleadings and the documents on record and we are of the view that the Writ Petition deserves to be allowed for the reasons that follow. 29. Rule 3(11) of the Lotteries (Regulation) Rules, 2010 is undisputedly a subordinate legislation. These rules have been framed by the Central Government in exercise of the powers conferred by Sub-Section 1 of Section 11 of the of the Lotteries (Regulation) Act, 1998. Contrary to what have been submitted by the Learned Additional Solicitor General, it is not a law framed in terms of Entry 96 of List 1 of the Seventh Schedule to the Constitution of India. Lotteries (Regulation) Act, 1998 admittedly was enacted under entry 40 of List-1 of the....
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....and such power was implied. The said decision cannot be made applicable to the facts of this case or the same should not be held to have laid down any legal proposition that in matters of imposition of tax or fees, the question of necessary intendment may be looked into when there is no express provision for imposition of fee or tax. The other decision in Khargram Panchayat Samiti's case, (1987 (3) SCC 82) also deals with the exercise of incidental and consequential power in the field of administrative law and the same does not deal with the power of imposing tax and fee. 7. The High Court has referred to the decisions of this Court in Hingir's case, (AIR 1961 SC 459) and Jagannath Ramanuj's case, (AIR 1954 SC 400) and Delhi Municipal Corporation's case (AIR 1983 SC 617) (supra). It has been consistently held by this Court that whenever there is compulsory exaction of any money, there should be specific provision for the same and there is no room for intendment. Nothing is to be read and nothing is to be implied and one should look fairly to the language used. We are, therefore, unable to accept the contention of Mr. Goswami. Accordingly, there is no occasion to interfere ....
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....nd is therefore, ultra vires. (ii) in the absence of an element of quid pro quo, the licence fee charged was not in the nature of a fee but a tax, and (iii) the tenfold increase in licence fee was highly excessive." 37. It was in the light of the above questions that the findings referred to by the Learned Additional Solicitor General reproduced extenso earlier was rendered. The decision therefore, would clearly not apply to the facts of the present case. 38. Apart from the above, we find it difficult to reconcile with the charge being imposed for draws taking place at Mizoram by the state of Sikkim for the sale of lotteries within its territory. The Notification appears to be conferring extra-territorial authority upon the state of Sikkim, which in our view would be impermissible considering the trite position on this. We are persuaded to accept the view of the Hon'ble High Court of Bombay expressed in Writ Petition No. 129 of 2001 in the matter of Jeevan Kumar SitaramSondhi (supra), wherein on facts somewhat similar to the present case, it was held that "under the amending Act, the tickets sold outside the state of Maharashtra would also be taxed by the State of Maharashtra....
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....he State of Karnataka. Thus organising States can organise their lotteries and also can sell their tickets in other lottery operating States. By this, there is no sale of lottery ticket in the State of Karnataka and therefore, there is no tax levied under Section 6 of the State Act. In such a situation, the other States will be organising and conducting their lotteries and even holding draws. Then indirectly it would mean, it is a tax on sale of lottery tickets and it cannot be said to be a tax on lottery, per draw. The law declared in Sunrise Associates in no tax can be levied on sale of lottery tickets since there is no sale of goods. The expression of 'sale' is not used though it is tax on sale of lottery tickets under the guise of tax per draw. The actual charging event, the levy and the nature of charge when examined indicates the only event that happens in Karnataka is sale of ticket and nothing else. Though the act is created to declare the State of Karnataka as other State lottery free zone but infact it is not so. As a matter of fact, the respondent/State has no expenditure either in the conduct of lotteries or on the holding of draw of the other State lotteries. There is ....