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2015 (10) TMI 2756 - HC - VAT and Sales TaxValidity of Rule 3 (11) of the Central Rules - a state, where lotteries are conducted by another state - entitlement of charge an amount of ₹ 2000/- (Rupees two thousand) per draw from the organising state - HELD THAT - 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 Seventh Schedule. Entry 40 of List-1 is one of the entries which empowers the Parliament to legislate and is regulatory in nature. Entries 82-92 in List-1 are taxing provisions by which Parliament may legislate on the subject - Naturally, the Lotteries (Regulation) Act, 1998 having been enacted under the regulatory provision of Entry 40 of List 1, it would not be permissible to levy tax or fees or in other charges or other forms of imposts thereunder. It, therefore, would follow by natural corollary that rules framed under the Lottery (Regulations) Act, 1998 cannot make a provision levying any tax or fees or imposts. In the present case, there are no specific provision in the central Act by which power to impose tax or fees has been provided. Rule 3(11) clearly appears to be in excess of the provisions in the parent Act, and therefore, would be rendered ultra vires the provisions of the Central Act. Rule 3(11) of the Lotteries (Regulation) Rules, 2010 is ultra vires the provision of the Lotteries (Regulation) Act, 1998 and is accordingly struck down - Notification No.380/FIN/ DSSL/431 dated 6.8.2010 issued by the Respondent No. 2 stands hereby quashed as being ultra vires the provisions of the Lotteries (Regulation) Act, 1998. Petition allowed - decided in favor of appellant.
Issues Involved:
1. Validity of Rule 3(11) of the Lotteries (Regulation) Rules, 2010. 2. Imposition of charges on draws conducted outside the state. 3. Legislative competence and the nature of the charge (tax vs. fee). 4. Extra-territorial operation of the impugned Notification. 5. Ultra vires nature of the impugned Rule and Notification. 6. Violation of constitutional provisions (Articles 14, 19, and 245). Detailed Analysis: 1. Validity of Rule 3(11) of the Lotteries (Regulation) Rules, 2010: The primary contention was that Rule 3(11) of the Lotteries (Regulation) Rules, 2010, which allows a state to charge Rs. 2000 per draw from the organizing state, was ultra vires the Lotteries (Regulation) Act, 1998. The court held that the Act, enacted under Entry 40 of List-1 of the Seventh Schedule, is regulatory and does not authorize the imposition of any tax, fee, or charge. Therefore, the impugned Rule 3(11) was beyond the scope of the parent Act and was struck down as ultra vires. 2. Imposition of Charges on Draws Conducted Outside the State: The petitioner argued that the charge imposed by the state of Sikkim on draws conducted in Mizoram had no nexus with the sale of lottery tickets in Sikkim. The court agreed, stating that the only activity occurring in Sikkim was the sale of lottery tickets, and the draw was conducted in Mizoram. Imposing a charge on an event occurring outside the state was deemed impermissible. 3. Legislative Competence and the Nature of the Charge (Tax vs. Fee): The petitioner contended that the charge was essentially a tax disguised as a fee, which was not permissible under Entry 40 of List-1. The court referred to several precedents, including State of West Bengal vs. Kesoram Industries Ltd., to conclude that Entry 40 is not a taxation entry. The court also noted that the power to tax must be explicitly provided in the parent statute, which was not the case here. Therefore, the charge was deemed invalid. 4. Extra-Territorial Operation of the Impugned Notification: The court found that the impugned Notification issued by the state of Sikkim had extra-territorial operation by taxing an event (the draw) that took place outside its jurisdiction. This was held to be in violation of Article 245 of the Constitution, which restricts states from enacting laws with extra-territorial effect. 5. Ultra Vires Nature of the Impugned Rule and Notification: The court held that both Rule 3(11) and the Notification issued under it were ultra vires the Lotteries (Regulation) Act, 1998. The Act did not provide for the imposition of any tax or fee, and thus, the subordinate legislation (Rule 3(11)) and the Notification were beyond the powers conferred by the parent Act. 6. Violation of Constitutional Provisions: The petitioner argued that the impugned Rule and Notification violated Articles 14 and 19 of the Constitution. While the court primarily focused on the ultra vires nature of the Rule and Notification, it implicitly acknowledged that such impositions could also violate constitutional guarantees of equality and freedom. Conclusion: The court allowed the writ petition, declaring Rule 3(11) of the Lotteries (Regulation) Rules, 2010, and the corresponding Notification issued by the state of Sikkim as ultra vires the Lotteries (Regulation) Act, 1998. The court ordered the state to refund all amounts paid under the impugned Rule and Notification and issued a writ of prohibition against their enforcement.
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