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TMI Blog2018 (4) TMI 1009X X X X Extracts X X X X X X X X Extracts X X X X ..... ls under the Kerala State Goods and Services Tax Act, 2017 (for short, the "Kerala State GST Act"). Apart from 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 of delegated legislation to interfere 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 petitioner is the authorised signatory of the first petitioner-partnership firm. The first petitioner was appointed by the State of Mizoram as a selling agent of Mizoram State lottery. The Mizoram State issued a notification on 13.7.2017 in terms of Section 4 of the Lotteries (Regulation) 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 of Mizoram decided to market and sell Mizoram State Lotte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 Kasaba Police. The petitioners allege that the Deputy Commissioner by 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 ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enerated from sale with the price offered. The State made an attempt to demonstrate that the revenue for sale has no match with gross price money. It is further pointed out 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 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 so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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 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 thereunder, 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 of the said Act." 14. The petitioners would contend that the Rules a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 is whether the petitioners are having a live cause of action to challenge the actions of the respondents. The petitioners have 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 and consideration of Ext.P26 would arise only if Mizoram Government had an intention to conduct sale of lottery in the State. The learned Senior Counsel particularly referred to the Ext.R11(g) produced along with the counter affidavit filed on behalf of the State of Mizoram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vires of the Rules: The petitioners challenge vires of the Rules as well. 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. This Court propose to deal with sub rule (d) of Rule 56(20A) while considering the issue of exercise of police power. The petitioners' challenge Rule 56(19)(g) & (i) on the ground that the petitioners cannot be directed to maintain such records as those matters are 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 are beyond the power of the Rule making authority, the Rules are an excessive delegation of power, the Rules are in the nature of essential legislative power etc. The practical difficulty therefore, is a matter of explanation before the authority to whom such compliance is required to be reported. Therefore, challenge on this ground must fail. 23. Point iii.-- Whether the Government is justified using police power to interfere with the lottery business in the State through the officials under the Tax Department. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The police cannot act merely based on the information given by the Tax officials. The police power in 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) 2 SCC 292] the Hon'ble Supreme Court had taken a view that 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 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. Point No. IV.--On scope of interference by the Tax officials of the Government invoking provisions of the Kerala State GST A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to regulate lottery, certainly, it will amount to encroachment of the power of the Parliament to legislate. The Rules thus, can be interpreted only in such a way to sub serve its object under the GST Act and Rules. It is nothing but determination and collection of tax. Chapter VIII of Kerala State GST Act refers to maintenance of accounts and other records. Chapter IX refers to returns. 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 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 assessment of the goods or services provided by the assessee. In regard to Rule 56(19) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement with the distributor. 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)]. 30. In regard to Rule 56(20A) of the Kerala State GST Rules, the petitioners also explained the manner in which the provisions can be complied. This Court, in fact, has already 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach of such occasions will have to be considered by the officials. Similarly, the petitioners also cannot be directed to file information in return to Annexure in regard to the percentage of commission they receive. The petitioners are having every right to withhold such information. No action can be initiated for non furnishing of such details regarding percentage of commission received. Percentage of commission has no nexus to the levy of tax to be collected from the petitioners. 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 object of such Rules is for proper assessment. Violation of Rules would depend upon satisfaction to be arrived in enquiry as to the compliance and non compliance. Rules adverted as above cannot be insisted as a pre condition to sell lottery tickets in the State. Therefore, compliance and non compliance would depend upon outcome of such enquiry. Rules as above are itself not determinative of violation. Such violation can be found out only after enquiry. Therefore, this Court is of the view that the petitioners should not be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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