GST - Lottery subject falls exclusively in domain of Parliament - Rule 56(20A)(iii)(d) of Kerala GST Rules, 2017 struck down - police cannot act merely based on information given by Tax officials: High Court
By TIOL News Service
ERNAKULAM, MAY 03, 2018: THE first petitioner was appointed by the State of Mizoram as a selling agent of Mizoram State lottery.
The first petitioner also obtained GST Registration Certificate from the Union Government and the Government of Kerala. An officer of Mizoram Government delivered the tickets to the petitioners on 26.7.2017. This was accompanied by documents for movement of goods.
On 28/7/2017, the petitioners were served with a notice by the Deputy Commissioner of State Goods & Services Tax Department, Kerala, directing 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. The petitioners allege that the Deputy Commissioner by colluding with the Police effected such seizure.
The petitioners have inter alia also have raised a contention that the officials under the Kerala State GST Act are not entitled to invoke the provisions of the Kerala State GST Act against the petitioners for sale of lotteries as the sale of lotteries is governed by integrated Goods and Service Tax Act, 2017 (IGST Act) since the sale of lotteries by the supplier and the place of supply are in two different States. Therefore, it is argued that the State officials cannot take any action against the petitioners.
The State Government defended their action by pointing out that the notification was issued only on 24.7.2017 and it was published on 27.7.2017 and tickets were delivered to the distributor on 26.7.2017, to demonstrate illegality. It was also pointed out that the Mizoram state, by notification dated 2.8.2017 have decided to keep lottery to be marketed in the State on hold and thereafter, by notification dated 5.9.2017, the Mizoram Government cancelled the lottery scheme introduced in the State of Kerala and, therefore, there is no cause of action for the petitioners to approach this Court.
The High Court considered the submissions and inter alia observed -
+ Though various arguments have been raised as to the power of the State Officials to proceed against the petitioners under the Kerala State GST Act, this Court cannot decide such issues without the same being considered by a primary authority which issued such notices.
+ Merely because this court was addressed and called upon to decide certain issues, which primarily need to be considered by a primary authority, as the court's jurisdiction on such matters can be exercised only by judicial review, the court must resist from pre-empting the primary authority deciding the matter after hearing the petitioners. Therefore, this Court is of the view that the question whether IGST would apply as the transaction in question is inter-State transaction will have to be left open.
+ It may be appropriate to mention that, in the notice itself the petitioners were directed not to proceed further until compliance with statutory provisions. This Court hold that the cause of action is alive and writ petition needs consideration.
+ 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.
+ Rule 56(20A)(iii)(d) refers to satisfaction entered by the authority as to the violations of the Lotteries (Regulation) Act. This Court is of the view that the above Rule has to be struck down as the State has no power to constitute one more authority under the Kerala State GST Rules to enter satisfaction as to the violations of the lottery. The Indian Constitution do not recognise police power as such. Therefore, the police power depend upon source of power to legislate.
+ Since lottery subject falls exclusively in the domain of the Parliament, the State cannot confer such power on any authority under the Kerala State GST to enter a satisfaction as to the violations of the Lotteries (Regulation) Act. Therefore, the above rule has to be struck down.
+ Section 8 of the Lotteries (Regulation) Act states that the offences under the said Act shall be cognizable and non bailable. Therefore, the police will have to enter a satisfaction as to the violation before proceeding against the offenders. 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. 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.
+ In a federal set up, one State cannot frown upon and decide the legitimacy of lottery of other State. Federalism works on mutual co-operation. If there is any violation of Lotteries (Regulation) Act, the State in fact, is raising a complaint against other State. Therefore, such complaint can be dealt only by the central Government and not by the State itself. The State Government or its officials are not the authority to decide that lottery conducted by other State is not in compliance with the Lotteries (Regulation) Act.
+ The Rules are not intended to regulate the activities of lottery and it cannot also be so. The Rules cannot be interpreted in such a way to regulate the sale of lottery. If the Rules accorded interpretation 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.
+ Court, therefore, is of the view that non compliance of maintaining records as referred in sub rule 19(g) & (i) of Rule 56 of the Kerala State GST Rules can be subject matter of enquiry in assessment proceedings or in other proceedings and cannot be a reason to prevent the petitioners from engaging sale of lotteries in the State.
+ 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, this Court is of the view that the petitioners should not be prevented from the sale of lottery for non compliance of Rules 56(19) and 56(20A) of the Kerala State GST Rules, in respect of which they have explained their practical difficulty in complying the same.
+ The petitioners also cannot be prevented from engaging in the sale of lottery for not furnishing details regarding unsold ticket particulars within 48 hours. 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. The petitioners are having every right to withhold such information.
(See 2018-TIOL-2772-HC-KERALA-GST)
