2007 (3) TMI 694 - HC - VAT and Sales Tax

Summary

Issues Involved: Notice compliance, Tax liability under Kerala Tax on Paper Lotteries Act, Registration requirement, Sale and distribution of lottery tickets, Constitutional validity of the Act, Jurisdiction of the State of Kerala.

Analysis:

The petitioner was served with a notice on May 15, 2006, from the Assistant Commissioner (Assmt.) Special Circle-I (KGST), Ernakulam, directing it to furnish details of lottery tickets purchased and sold during 2005-06 and for April and May 2006. The petitioner responded with details of lottery tickets purchased from Kerala but mentioned that tickets from Karnataka were managed by their Bangalore office. A subsequent notice on May 18, 2006, from the second respondent alleged the petitioner sold lottery tickets from outside the state without remitting tax under the Kerala Tax on Paper Lotteries Act, 2005, violating sections 7, 8, and 10. The petitioner was informed of penalties and dues amounting to Rs. 27,37,50,000 and a penalty of Rs. 6,36,71,500 for non-remittance of tax and filing of returns.

The petitioner contested these claims, stating that lottery tickets from Karnataka were not sold or distributed in Kerala and were kept in Bangalore. They argued they were not promoters as defined under section 2(l) of the Act and hence not liable for registration under section 7 or penalties under sections 22 and 23. The second respondent, however, passed an order on October 25, 2006, affirming the violations and imposing the dues and penalties.

The petitioner challenged these orders and the constitutional validity of the Kerala Tax on Paper Lotteries Act, 2005, in W.P. (C) No. 30558 of 2006. The single judge dismissed the writ petition, suggesting an alternative remedy of appeal. The petitioner then filed W.A. No. 2429 of 2006 and W.P. (C). No. 5154 of 2007, seeking to quash the revenue recovery notices and a declaration that the respondents had no right to enforce those orders.

In defense, the petitioner argued that they were not legally bound to register under section 7 as they were not promoters within the definition of the Act. They cited the Supreme Court's decision in Sunrise Associates v. Government of NCT of Delhi, which held that lotteries are not "goods" for sales tax purposes but actionable claims. The petitioner claimed the taxable event occurred in Karnataka, governed by the Karnataka Tax on Lotteries Act, 2004, not the Kerala Act.

The Special Government Pleader argued that the petitioner conducted business of selling Karnataka and Kerala State lottery tickets in Kerala and was bound to register under the Kerala Act. The petitioner was deemed a promoter under the Act, liable for registration and tax.

The court examined the petitioner's business model, noting that lottery tickets from Karnataka were managed from their Bangalore office and not sold in Kerala. The petitioner had registration for Kerala State lottery tickets but not for Karnataka tickets, as they were not appointed by Karnataka to sell tickets in Kerala. The court found no evidence that the petitioner sold Karnataka lottery tickets in Kerala, thus not fitting the definition of a promoter under section 2(l) of the Act. Consequently, the petitioner was not required to register under section 7, and the imposition of tax and penalties was unauthorized and without jurisdiction.

The court also noted the State Government's inconsistent stance regarding the term "promoter" in similar cases. The court allowed W.A. No. 2429 of 2006 and W.P. (C) No. 5154 of 2007, quashing the impugned orders and demand notices. W.P. (C). No. 2513 of 2007 was dismissed as infructuous.