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TMI Blog2015 (10) TMI 2756X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 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. - W.P. (C) NO. 41 OF 2013 - - - Dated:- 14-10-2015 - MR. JUSTICE SONAM PHINTSO WANGDI, JUDGE AND MRS. JUSTICE MEENAKSHI MADAN RAI, JUDGE Mr. A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out the provisions of the Act. Section 12 authorises the various State Governments to make rules in their Official Gazette to carry out the provisions of the Central Act. In exercise of the power conferred by Section 11 (1) of the Lotteries (Regulation) Act, 1998 the Lotteries Regulation Rules, 2010 ( Central Rule for short) was enacted. 3. In the present Writ Petition, validity of Rule 3 (11) of the Central Rules (referred to as the impugned Rules ) is under question, which provides that a state, where lotteries are conducted by another state, it is entitled to charge an amount of ₹ 2000/- (Rupees two thousand) per draw from the organising state. 4. It is stated that fixing of a charge does not flow from any of the provisions of the Lotteries (Regulation) Act, 1998. The State of Mizoram sells lottery tickets in the Respondents State in accordance with Section 4(c) of the Central Act. The draws announcing the winning numbers are conducted within the state of Mizoram in accordance with Section 4(e) and 4(g) of the Central Act. The Respondent No.2, the state of Sikkim, issued Notification No. 380/FIN/DSSL/431dated 6.8.2010 (referred to as the impugned N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was submitted that Entry 40 List-1 of the Seventh Schedule of the Constitution of India is not a taxation entry. 9. Reliance was also placed on M/s Future Gaming Solutions Pvt. Ltd. Vs Union of India : 2005 (37) STR 65 (Sikkim) wherein it was held that when none of the provisions of the Central Act could provide for the levy of any tax or fee or charge and do not provide so, it is unjust and impermissible to frame the impugned rule under the Central Rules which are in the nature of a subordinate legislation. Referring to Ahmedabad Urban Development Authority vs. Sharadkumar Jayantikumar Pasawalla And Others : AIR 1992 SC 2038, it was submitted that no tax or fee or compulsory charge can be imposed by any byelaw, rule or regulation unless the statute under which the subordinate legislation was made specifically authorises such imposition. 10. Reference was also made to A-G. vs. Wills United Dairies Ltd,: (1922) 127 LT 822, M/s Future Gaming solutions Pvt. Ltd. vs Union of India : 2014(36) STR 733 (Sikkim), Lilasons Breweries (P) Ltd. vs. State of M.P : AIR 1992 SC 1393 and a host of other decisions in support of the contention that a delegated legislation canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate by organizing States. 14. Finally it is urged that the impugned Notification suffers from the vice of extra territorial operation. It is stated that the draw indisputably takes place outside the state of Sikkim, having regard to the mandatory provision under Section 4(g) of the Central Act for the organising states to conduct the draws only within the State. The only event taking place within the state of Sikkim is the sale of lottery tickets. Thus, the impugned Notification seeking to tax an event that takes place outside the State of Sikkim is in violative of Article 245 of the Constitution of India. 15. The decisions in the case of Jeevan Kumar Sitaram Sondhi vs. State of Maharashtra : W.P. No. 129/2001 dated 30.03.2001 and Manunatha Agency vs. State of Karnataka (supra) were relied upon to submit that where tax was sought to be imposed on draws outside the territorial jurisdiction of the state and therefore, had an extra territorial operation, it was invalid and ultra vires the Constitution. 16. The Petitioner thus submits that the impugned Rule and the impugned Notification deserve to be struck down as ultra vires the Lotteries (Regulation) Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by him that there is no provision in the Central Act for the levy of any sort of tax or fee or compulsory charge by any State on the organising State. The Lotteries (Regulation) Act, 1998 was enacted by the Parliament under Entry 40 list-1 of the Seventh Schedule to the Constitution of India which is not a taxation entry. He would strongly refer to and rely upon State of West Bengal vs Kesoram Industries Ltd And Others (supra), more particularly, the following portions:- 74. It is necessary to examine the scheme underlying the Seventh Schedule of the Constitution. We are relieved of the need of embarking upon any maiden voyage in this direction in view of the availability of a Constitution Bench decision in M.P.V. Sundararamier Co. V. State of A.P., Venkatarama Aiyar, J., speaking for the Constitution Bench, traced the history of legislations preceding the Constitution, analysed the scheme underlying the division of legislative powers between the Centre and the States and then succinctly summed up the quintessence of the analysis. It was held, inter alia: 1. In List I Entries 1 to 81 mention the several matters over which Parliament has authority to legislat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to any entry in List II and List III, residuary power under entry 97 of List I read with article 248 of the Constitution of India will not be available to it, the same having been specifically restricted under entry 97 of List I and article 248 of the Constitution. (u) In the instant case, the power to tax on lotteries or even betting and gambling is not available under any of the entries of List I. However, such power is germane to and emanates from entry 62 of List II in the Seventh Schedule, meaning thereby that the residuary power to enact a law imposing tax on lotteries would not be available to the Parliament. 23. It is contended that in the circumstances when none of the provisions of the Central Act provide for levy of any tax, fee or charge, it is unjust and impermissible to frame the impugned rule under the Central Rules which is in the nature of subordinate legislation in prescribing a minimum charge per draw which the state would be entitled to charge from the organising State. It is submitted that the Central Rules, which are in the nature of a subordinate legislation, cannot go beyond the Central Act and confer power not prescribed in the pare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there should be quid pro quo. The power as per the impugned rule has been vested upon the State Governments to charge a minimum amount of ₹ 2000/- per draw from the organising state and therefore, it is within the competence of the states to resort to such benefit. The money revenue collected as a result of the imposition would go to the states. As per the Learned Additional Solicitor General, the provision has been made in order to compensate for the facility provided to other states to sell their lottery tickets within their territories. In support of his contention Mr. Chanda relied upon the decision of Delhi Race Club Ltd. vs. Union of India And Others (2012) 8 SCC 680, the relevant portion of which are as under:- 35. In the light of the tests laid down in Hingir- Rampur [AIR 1961 SC 459: (1961) 2 SCR 537 ] and followed in Kesoram Industries [2004) 10 SCC 201], it is manifest that the true test to determine the character of a levy, delineating tax from fee , is the primary object of the levy and the essential purpose intended to be achieved. In the instant case, it is plain from the scheme of the Act that its sole aim is regulation, control and manageme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Krishan Puri. Opining that the observation made in the said decision seeking to quantify the extent of correlation between the amount of fee collected and the cost of rendition of service, namely: At least a good and substantial portion of the amount collected on account of fees, may be in the neighbourhood of two-thirds or three-fourths, must be shown with reasonable certainty as being spent for rendering services in the market to the payer of a fee appeared to be an obiter, the Court echoed the following views insofar as the actual quid pro quo between the services rendered and payer of the fee was concerned: (Sreenivasa case [(1983) 4 SCC 353], SCC pp.380-81, paras 31-32) 31. The traditional view that there must be actual quid pro quo for a fee has undergone a sea change in the subsequent decisions. The distinction between a tax and a fee lies primarily in the fact that a tax is levied as part of a common burden, while a fee is for payment of a specific benefit or privilege although the special advantage is secondary to the primary motive of regulation in public interest, if the element of revenue for general purpose of the State predominates, the levy becomes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is sufficient for meeting the expenditure in that year. In some years, the income of a market committee by way of market fee and licence fee may exceed the expenditure and in another year when the development works are in progress for providing modern infrastructure facilities, the expenditure may be far in excess of the income. It is wrong to take only one particular year or a few years into consideration to decide whether the fee is commensurate with the services rendered. An overall picture has to be taken in dealing with the question whether there is quid pro quo i.e. there is correlation between the increase in the rate of fee from 50p. to rupee one and the services rendered. (Sreenivasa case [(1983) 4 SCC 353). ........ ................................................................... 38. The same principle was reiterated in Secunderabad Hyderabad Hotel Owners Assn. Case [(1999) 2 SCC 274] where the existence of two types of fee and the distinction between them has been highlighted as follows: (SCC p. 282, para 9) 9. It is, by now, well settled that a licence fee may be either regulatory or compensatory. When a fee is charged for rende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gulatory in nature. Entries 82-92 in List-1 are taxing provisions by which Parliament may legislate on the subject. This proposition has been over succinctly set out in State of West Bengal vs. Kesoram Industries Ltd. And Others (supra) relied upon by the Petitioner. These are different fields of legislation. Naturally, therefore 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. 30. In Ahmedabad Urban Development Authority vs. Sharadkumar Jayantikumar Pasawalla : AIR 1992 SC 2038, it has been held that no tax, fee or compulsory charge can be imposed by any by law, rule or regulation unless the statute under which the subordinate legislation was made specifically authorises the imposition. We may reproduce the relevant portion of the Judgment as under:- ................................................................... 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der as to costs. 31. Reference may also be made to the recent decision of the Hon ble Supreme Court in State of Rajasthan and Ors. Vs. M/s Basant Agrotech (India) Ltd : AIR 2014 SC 487. 32. In the present case, as noted earlier, we do not find any 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. 33. Reliance placed by the Learned Additional Solicitor General on the case of Race Club Ltd. (supra) appears to be clearly erroneous. The decision rather appears to be in consonance with the view taken by us that Rules framed under an Act is to give effect to provisions of the Act and that the source of the provisions of the Rules must be traced to the parent Act. 34. In the Delhi Race Club Case (supra) the provisions under consideration were Section 3 of Mysore Race Courses Licensing Act, 1952 which provided that no horse race shall be held save on a racecourse for which a licence for horse racing granted in accordance with the provisions of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tside the state which is beyond the power of the state under the Constitution. Specific reference was also made to Article 286(1) of the Constitution which restricts imposition of tax by a state for sale or purchase outside the state. Although, the Judgment was rendered in respect of sales tax, the principle would certainly apply to the case at hand. 39. In State of Meghalaya and Another vs. State of Karnataka, a Division Bench of the Karnataka High Court, while deciding a batch of appeals, one of which was WA No.2251/2007, wherein the vires of the Karnataka Tax authorities, 2004 promulgated by the state of Karnataka imposing tax on lotteries of the appellant state, was in question, it was held as under : 20. Under the State Act, charging Section can be understood from Section 6 of the State Act which refers to tax on lotteries at a fixed rate per draw. Conducting of lotteries and the draw both events take place outside the State of Karnataka so far as State Organised Lotteries. If the operation of the State Act extends only to the State of Karnataka, the event of draw takes place outside the territories of State of Karnataka. ....................... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate of Karnataka as there is no question of reimbursement. It is nothing but a piece of colourable legislation to achieve indirectly what it cannot achieve directly. In view of the bar created under Article 289 of the Constitution, the revenue of one State cannot be taxed by other States or even Union. But, the revenue of other States is indirectly taxed by the State of Karnataka. Hence, the impugned act has to be held as without jurisdiction. 40. We may also refer to Lokmanya Mills Barsi Ltd. vs. Barsi Borough Municipality (supra). M/s Shubh Enterprises Vs. Union of India Ors. 30 WP (C ) No. 41 of 2013 41. In our considered opinion, therefore, the impugned rule appears to be bereft of jurisdiction having been framed in colourable exercise of power and in excess of and dehors the provisions of the Lottery (Regulation) Act, 1998. 42. For the aforesaid reasons, we order that:- (i) 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. (ii) Consequently Notification No.380/FIN/ DSSL/431 dated 6.8.2010 issued by the Respondent No. 2 st ..... X X X X Extracts X X X X X X X X Extracts X X X X
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