TaxTMI 
TaxTMI 
2021 (5) TMI 927
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....to some extent while nourishing the State exchequer at the same time. 2. The Lotteries (Regulation) Act, 1998 (for brevity 'the Act') was enacted by the Parliament. The source of legislative power for the Act is traced to Entry 40 of List 1 of the VII Schedule to the Constitution of India. The Government of Kerala enacted the Kerala Paper Lotteries (Regulation) Rules, 2005 (for short 'Kerala Rules'), in exercise of the powers under section 12 of the Act. The Kerala Rules as originally enacted applied only to lotteries organised by the Government of Kerala. Thereafter, the Central Government enacted the Lotteries (Regulation) Rules, 2010 (for short 'Central Rules'). The subject matter of this dispute centers on an amendment brought in by the Kerala Government in 2018, known as the Kerala Paper Lotteries (Regulation) Amendment Rules, 2018 (for short 'Amended Rules'). By the said amendment, the Kerala Rules have been amended to incorporate allegedly restrictions/regulations for the conduct of outside State lotteries in Kerala. 3. Future Gaming & Hotel Services (P) Ltd. - a company with its registered office at Coimbatore, Tamil Nadu, claiming to b....
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....islation also, always, starts with the presumption of being intra vires and that if two constructions are possible, attempt must be made to make the rule valid and if found offensive, recourse can be made by reading down the provisions so as to make it in consonance with the parent statute. In the reply arguments, Sri. Shishodia decried the concept of the Host State being relegated to a position of a helpless observer while naked violation of the Act and the Rules are going on and submitted that such a situation is not contemplated by the Act. He further submitted that when the subjects of Kerala State are exploited and are suffering, an elected State cannot remain as mute spectators. 8. On the other hand, the three learned Senior Counsel for the respondents referred to the doctrine of occupied field and argued that the State has no authority to enact the Amended Rules. Relying upon the decision in B.R Enterprises case (supra) it was argued that no State can prohibit the conduct of lottery by another State if the Host State was not a lottery free zone. Sri. Harish Salve bolstered his submissions by referring to the Central Rules as a complete package available to the Host State ....
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....itled to patrol the frontiers of the rights of the Union and of the States to legislate. More often than not, the Constitutional Courts will, through a process of interpretation, limit the State from exercising its statutory powers, in a manner that will undermine the federal authority of the Union as well as curtail the Union from undermining the States power to legislate on entries they are entitled to legislate. The case on hand deals with the alleged transgression by the State of Kerala into Entry 40 of List I, as well as exceeding the power conferred by section 12 of the Act. While patrolling the respective borders, this court, in the instant appeal, will have to decide whether the Amended Rules have forayed into Entry 40 of List I, and also whether the Amended Rules are beyond the letter of section 12 of the Act or contrary to the Central Rules of 2010. 12. While patrolling the above-referred frontiers, We remind ourselves that there shall be judicial restraint when judging the validity of even a delegated legislation. It was held in Hinsa Virodhak Sangh v. Mirzapur Moti Kuresh Jamat and Others [(2008) 5 SCC 33), that "the court should exercise judicial restraint while jud....
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....ract paragraphs 87 and 88 of the decision in B.R.Enterprises case (supra), in its entirety. "87. We find on plain reading of Section 5, it empowers the State Government within its State to prohibit the sale of tickets of the lotteries organised by every other State. There is also nothing in the language reading by itself so as to say, whether such power can be exercised by the State while running its own lottery or can be exercised only where such State does not run its own lottery. This leads to two possible interpretations, as referred to above. In view of settled principle of interpretations, the interpretation given by the Union to read down the provision has substance. This would mean that the State could only exercise such discretion if it decides not to have any lottery within its territory including its own lottery. In this situation, the delegatee is tied down by this limitation which itself is a clear guide to a State hence cannot be said to be unbridled delegation. So even to the first part it cannot be said to be arbitrary or unbridled. So, we have no hesitation to approve the interpretation given by the Union to uphold the validity of Section 5. 88. I....
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.... recent past by the Honourable Supreme Court in the matter, the evil has not been totally eliminated and it is felt that a Central legislation to regulate the conduct of lotteries is necessary to protect the interest of the gullible poor." 19. When the Act is viewed in the light of the above-extracted statement of objects and reasons, it is apparent that the underlying purpose of the Act is to balance the revenue generating interests of the State with the pernicious nature of lottery, without it being exploitative of those who are gullible to such practices. Sufficient safeguards are provided under the Act to initiate prosecution proceedings and to impose punishment which may extend to 2 years or with a fine or with both as per section 7 of the Act. The Central Government has the power under section 10 of the Act to give directions for carrying into execution any of the provisions of the Act or the Rules made thereunder. The Act also vests the Central Government with the power to make rules to carry out the provisions of the Act. Apart from the above-referred provisions, the Parliament has also bestowed the State with a power to legislate the contours of which are called upon in....
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....in section 12 of the Act as compared to the word 'A State' deployed in Section 4 of the Act apart from the observations of a co-ordinate Bench of this Court in W.A. No.1464 of 2010 stating that "The State Government means the Government which organises, conducts or promotes any lottery". 23. The use of the indefinite article 'A' in section 4 of the Act and the definite article 'The' in section 12 before the word 'State' may indicate a different meaning when viewed in a grammatical perspective. However, a strict application of grammatical constructions while interpreting statutory enactments can occur to be delusive at times. If the strict grammatical application of words and sentence construction leads to results that are anomalous or even to results not contemplated by the Act, adherence to strict rules of grammar can be departed from. 24. In the decision in N.T. Veluswami Thevar v. G.Raja Nainar and Others (AIR 1959 SC 422) and K. Prabhakaran v. P. Jayarajan [(2005) 1 SCC 754), it was held that, if the grammatical construction leads to some absurdity or some repugnance or inconsistency with the rest of the instrument, it may be departed from,....
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....being credited into the accounts of the State? These are some of the questions, the answers to which are required to be known even to the Host State to ensure compliance with the Act or to form an opinion about the nature of the lottery. 28. Ensuring compliance with the provisions of the Act is different from prohibiting the conduct of lottery. If the power under section 12 of the Act, is interpreted to mean as only the Organising State that can make rules to carry out the provisions of the Act, it may lead to an absurd situation. When the subjects of a Host State are being exploited and when a person is conducting the lottery wholly in violation of the Act, should the Host State be deprived of even a mechanism to at least assess or identify the nature of the conduct of such lotteries? It would lead to absurdity if the Host State is entirely powerless in such a scenario. It would also effectuate an inconsistency where an offence committed under the Act is punishable, but the Host State is incapable of identifying the nature of offences committed. Such an anomalous and incongruous situation could never have been intended by the Parliament. To prevent blatant violations of the Act....
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....cision is a precedent on its own facts. Each case presents its own features. It is not everything said by a Judge while giving judgment that constitutes a precedent. The only thing in a Judge's decision binding a party is the principle upon which the case is decided and for this reason it is important to analyse a decision and isolate from it the ratio decidendi. According to the well-settled theory of precedents, every decision contains three basic postulates: (i) finding of material facts, direct and inferential. An inferential finding of facts is the inference which the Judge draws from the direct, or perceptible facts; (ii) statements of the principles of law applicable to the legal problems disclosed by the facts; and (iii) judgment based on the combined effect of the above. A decision is an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically flows from the various observations made in the judgment. The enunciation of the reason or principle on which a question before a court has been decided is alone binding as a precedent. (See State of Ori....
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....trine of occupied field 35. The doctrine of occupied field can have no application in the instant case since the State has not entered into a field occupied by the Central legislation. Though the Act covers the entire field of lottery, States have been given the power to make rules. When the Parliament has enacted a law on the basis of an entry in List I and when the said Central legislation confers power upon the State to make rules, it cannot be countenanced that, when such rules are made, the same ought to be branded as beyond the rule making power of the States. The doctrine of occupied field cannot be invoked to test the validity of a State rule enacted in exercise of the power conferred by the Central legislation. If a Central legislation confers general rule-making power upon the State, in areas where the Central Government has not framed rules, the State Government will be entitled to frame rules. The doctrine of occupied field will not in such instances be applicable, unless there is an intrusion. In simple terms, the principle of the doctrine of occupied field is that if the Parliament legislates on a particular subject, and thereby occupies the field, the State legisl....
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.... so framed would be void". 39. To identify the extent of transgression by the State, it is necessary to look into the Central Rules, 2010. It is not in dispute that under the Act, the power to prohibit a lottery is vested only with the Central Government. However, rule 3(22) of the Central Rules confers an obligation upon the Host States to ensure proper conduct of lottery within its jurisdiction. Rule 5 of the Central Rules provides the procedure in which the Central Government can prohibit the sale of lottery tickets. For a better comprehension, it is necessary to extract rule 3(22) and rule 5(1) of the Central Rules, which are as follows: "Rule 3(22). Every State Government shall ensure that no lottery, in any form, is organised by any authority other than the Organising State or its appointed distributors or selling agents within its jurisdiction" Rule 5(1) If a State Government is of the opinion that the Organising State or the distributors or selling agents are organising 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 concerned along with the details of s....
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....d that "The first contention of the appellants is that the lotteries marketed by them are lotteries organised by the Governments of other States in India and therefore in view of Article 246 of the Constitution read with Entry 40 in the Union List, only the Parliament has power to make laws with respect to the conduct or marketing of those lotteries and consequently the Government of Kerala is not competent to make a rule like sub-rule (3) of Rule 24, which provides that no lottery shall be marketed until appropriate orders under sub-rule (2) are issued by the Secretary to Government, Taxes Department and that the Enforcement Agency can seize the tickets marketed before passing any order in this regard. According to the appellants sub-rule (3) of rule 24 is therefore unconstitutional. Sub-rule (3) of rule 24 is only part of the Kerala State Lotteries and On-line Lotteries (Regulation) Rules, 2003, made by the Government of Kerala in exercise of the powers conferred by sub-sections (1) and (2) of Section 12 of the Lotteries (Regulation) Act, 1998. The said Act was enacted to regulate the lotteries and to provide for matters connected therewith and incidental thereto. The provisions ....
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....Kerala has the competence to enact the impugned rules. 46. In view of the above discussion, we answer the first issue in favour of the appellants. We hold that the Host State is entitled to make rules under section 12 of the Act to monitor the conduct of lotteries of Organising States within the territory of the Host State. Issue No.2 47. Having held as above, we proceed to consider as to whether the provisions of the amended rules are ultra vires or contrary to the Act or the Central Rules. Challenges were specifically raised against rule 2(3A), rule 2(6A), rule 4(4), rule 4(5) and rule 9A. For easier comprehension the amendments carried out to the Kerala Rules through the Amended Rules are extracted as below: The Kerala Paper Lotteries (Regulation) Amendment Rules, 2018 Rule 2(3A): 'Authority' means the Secretary to Government, Department or authority or officer specifically appointed by the Government to organize State Lottery and regulate the sale of other State lotteries within the State as provided in the Act. Rule 2(6A): 'Enforcement Agency' means the District Collector, District Superintendent of Police, Commissioner of Police o....
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....to furnish the complete details within a period of 15 days. The Secretary to Government of Kerala, Taxes Department shall assess the report independently taking into account of various other information available with him from the Goods & Services Tax Department, Police or any other source if any, and decide as to whether the scheme satisfies all the provisions of the Act and shall pass appropriate orders. Rule 9A(3): No lottery shall be marketed in the State until appropriate orders under sub-rule (2) above are passed by the Secretary to Government. Enforcement agencies may seize such tickets marketed before passing any order in this regard. Rule 9A(4): The enforcement agency may - (a) seize for the purpose of further examination or securing information or investigation, any lottery, thing, machine, document, account books or data on or in such premises or facility which has a bearing on conduct of lottery. (b) seal or otherwise secure any such premises, facility, thing or machine or in which any document or data which has a bearing on the conduct of lottery is stored. (c) take such legal action as per the Act, which are necessary to pr....
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....ssary for the public interest or protection of the integrity and interest of the lottery. (b) Examine or inspect anything, machine, document or data captured in any form found on or in the premises or facility and make copies of or make extracts from that thing, machine, document or data. (c) to take copies of any document including any information kept by the distributors, agents, and selling agents relating the lottery or all other ancillary activity within the State. (d) assist to inspect and take copies of the information in a visible and legible form from the computer or to inspect and check the operation of any computer and any associated apparatus or materials that is or has been in use in connection with keeping of the information. Rule 9A(8): No other State selling their tickets in the State of Kerala shall use a name of prefix or suffix in the name of lottery (eg:-Kerala, name of the cities and town or any such other name which can be used as a prefix or suffix or otherwise) which could mislead people to believe that the said lottery is organised, conducted or promoted by the Government of Kerala and where the State Government is satisf....
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....te to conduct lotteries conferred under the Act, have been taken away by the Amended Rules, which is a direct infringement upon the Act. Specific reference was made to rule 4(4) of the Amended Rules. 49. Rule 2(3A) only names an authority for regulating the sale of other lotteries in the State, while Rule 2(6A) creates an enforcement agency. These two rules cannot under any circumstances be regarded as infringing any right of the Organising State. It does not amount to taking away the right of the Organising State to conduct lotteries in the Host State. Rule 4(5) speaks about power to monitor the sale of outside lottery. This power is necessary for ensuring compliance with the Act and for identifying violations or irregularities in the sale of tickets. This power has nothing to do with prohibition of lottery and is hence valid. We also do not find any infringement of the Act or the Central Rules due to Rule 9A of the Kerala Rules. 50. Rule 4(4) of the Amended Rules, as extracted earlier, shows that the Secretary of the Kerala Government, Taxes Department shall be the authority for conduct of lotteries organized by other States. The right to conduct a lottery is vested with th....
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....n the same section for the distribution into sections is purely artificial; but whether they are essentially and inseparably connected in substance. If, when the unconstitutional portion is stricken out, that which remains is complete in itself, and capable of being executed in accordance with the apparent legislative intent, wholly independent of that which was rejected, it must be sustained." The above observations were relied upon by the Constitution Bench of the Supreme Court in Harakchand Ratanchand Banthia and Others v. Union of India and Others [(1969) 2 SCC 166]. 52. Applying the said principle to rule 4(4) of the Amended Rules, it can be seen that the offending portion of the said rule are the words "including lotteries run/organized/promoted by other States" and if the said offending portion is deleted or severed, the rule will still continue to have meaning and life. Applying the doctrine of severability, we sever the aforesaid words from rule 4(4) and hold the severed portion of the said rule as ultra vires the Lotteries (Regulation) Act, 1998. 53. Rule 9A(3) was also contended to be in confrontation with the Act and the Central Rules, apart from it being an infra....
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....ur Constitution is a co-operative federalism and a pragmatic approach ought to be adopted for creating a harmonious existence. As held by the Constitution Bench in the decision in Government of NCT of Delhi v. Union of India and Another [(2018) 8 SCC 501), that "Our Constitution contemplates a meaningful orchestration of federalism and democracy to put in place an egalitarian social order, a classical unity in a contemporaneous diversity and a pluralistic milieu in eventual cohesiveness without losing identity." It further held that "the constitutional vision beckons both the central and state governments alike with the aim to have a holistic edifice and also that the Union and the State Governments must embrace a collaborative federal architecture by displaying harmonious co-existence and interdependence so as to avoid any possible constitutional discord. Acceptance of pragmatic federalism and achieving federal balance has become a necessity requiring discipline wisdom on the part of the Union and State Governments by demonstrating a pragmatic orientation." 56. Dealing with the contention of infraction of principles offederalism this Court had held in Tashi Delek Gaming Solutio....
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....ibutors for conducting lottery for the State of Nagaland was not transparent and that instead of sale proceeds being paid to the State Government, what was paid by the distributor to the State was only a minimum guaranteed revenue. It was startling to note that the minimum guaranteed revenue received by the State of Nagaland was only Rs. 56.93 Crores as against total sale proceeds of Rs. 17653.76 Crores for the period 2010-11 to 2015-16. In the aforesaid figure, the distributor's share alone was Rs. 4522.24 Crores. The CAG of India further observed that when the State Government's revenue was only 1.24% of the total sale proceeds, the distributor's share was 98.76%. The report of the Comptroller and Auditor General of India also indicated that collusion was writ large in the bidding process and formation of a cartel was evident which undermined the transparency and fairness required in the selection of the distributor. After examining the profile of the four companies that participated in the bidding process, the CAG concluded that the four companies were connected directly or indirectly with each other, thereby revealing the collusive bidding process. 59. Though the rep....