Delhi High Court
K.K. Nangia & Others vs Government Of Nct Of Delhi & Anr on 15 April, 2009
Author: Badar Durrez Ahmed
Bench: Badar Durrez Ahmed, Rajiv Shakdher
THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 15.04.2009
+ WP (C) 2752/1998
K.K. NANGIA & OTHERS ... Petitioners
- Versus -
GOVERNMENT OF NCT OF DELHI & ANR ... Respondents
Advocates who appeared in this case:-
For the Petitioners : Mr Sanjay Jain, Sr Advocate with Ms Rana Parveen Siddiqui, Mr Arjun Mitra and Mr Mohammad Qamar Ali For the Respondents : Ms Avnish Ahlawat with Ms Latika Chaudhary, Ms Nidhi Gupta and Ms Simran CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE RAJIV SHAKDHER
1. Whether Reporters of local papers may be allowed to see the judgment ? YES
2. To be referred to the Reporter or not ? YES
3. Whether the judgment should be reported in Digest ? YES BADAR DURREZ AHMED, J
1. In this petition, the charge of licence fee under Rule 46(4) of the Delhi Entertainments and Betting Tax Rules, 1997 (hereinafter referred to as „the said Rules‟) is under challenge as being ultra vires the Delhi Entertainments and Betting Tax Act, 1996 (hereinafter referred to as „the said Act‟).
WP(C) 2752/98 Page No. 1 of 13
2. The petitioners are licenced book makers and are operating as book makers in the Delhi Race Club (1940) Limited and are governed by the Royal Western India Turf Club, Bombay. The petitioners have been given licences to operate the books at the Delhi Race Club on payment of prescribed fee of Rs 9,400/- etc. per day for "On Course"
races and Rs 5,400/- etc. per day for "Off Course" races. In exchange for the payment of the said licence fee, the said club permits the petitioners to operate and accept bets from punters. It is stated on behalf of the petitioners that as an arrangement of quid pro quo amenities like electricity, water, toilets, canteen, hotline for giving the running commentary and close circuit TV to monitor the live races in Delhi are provided by the said club.
3. The club also issues race cards / books for the day giving details about the horses and holds previews of last week‟s "Off Course" races, in the coming week so that the book makers can judge the performance of horses in the past races and are better equipped to offer odds for the bets. The persons who place bets are also benefitted in choosing the best available bets.
4. The said club has been granted a licence for horse racing under Rule 6 of the Delhi Race Course Licencing Rules, 1985 framed under the Mysore Race Course Licencing Act, 1952 as extended to the WP(C) 2752/98 Page No. 2 of 13 National Capital Territory of Delhi. Under the Mysore Race Course Licencing Act, 1952, a provision has been made by virtue of Section 11 to enable the Government to make rules, inter alia, to charge "fees" and the quantum of the fee has been left to be provided by the licencing rules.
5. It has been submitted on behalf of the petitioners that earlier when the U.P. Entertainment and Betting Tax Act, 1937 was in force in Delhi, the book makers were not required to be licenced by the respondents, but with the introduction of the said Act (Delhi Entertainments and Betting Tax Act, 1996), the petitioners were required to get a licence to operate as book makers on a licence fee of Rs 2 lakhs per year. This requirement was allegedly prescribed under Rule 46 of the said Rules read with Section 20 of the said Act. According to the learned counsel for the petitioners, book makers at other race courses in Bombay, Calcutta, Bangalore, Mysore, Chennai, Ooty and Hyderabad do not pay any licence fee to their respective Entertainments and Betting Tax Departments. It was, however, pointed out that in U.P., under Rule 47, a nominal fee of Rs 2,000/- per year was being charged from the book makers and it is perhaps because of the nominal nature of the fee that the same has not been challenged. However, since the amount sought to be recovered from the petitioners as licence fee under the said Act and Rules is heavy, the petitioners, WP(C) 2752/98 Page No. 3 of 13 being aggrieved by the same, have challenged it by way of this writ petition.
6. It would be appropriate at this juncture to set out the relevant portions of Sections 20 and 45 of the said Act and Rule 46 of the said Rules:-
"20. Licence for book-maker No person shall act as book-maker unless he obtains a licence from the Commissioners in the form and manner prescribed."
"45. Power to make rules (1) The government may make rules for carrying out the purposes of this Act.
(2) In particular and without prejudice to the generality of the foregoing power, such rules may provide, for--
xxxxx xxxxx xxxxx xxxxx
(l) prescription of form and the manner for obtaining book-makers licence;
xxxxx xxxxx xxxxx xxxxx (3) Every rule made under this Act shall be laid, as soon as may be after it is made, before the House of Legislative Assembly of the National Capital Territory of Delhi while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, the house agrees in making any modification in the rule or the House agrees that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule."WP(C) 2752/98 Page No. 4 of 13
"46. Licence for book-maker xxxxx xxxxx xxxxx xxxxx (3) The Commissioner may, if satisfied, grant a licence to the applicant in Form "17" after getting the licence fees at the rates fixed under sub-rule (4), deposited on the conditions set forth therein and on such additional conditions as he may consider necessary.
(4) The fee payable for the grant or renewal of licence for book-maker shall be levied at the following scale:-
(a) Upto six months--Rs. 1,00,000 (one lakh rupees).
(b) six months to one year--Rs.2,00,000 (two lakh rupees) xxxxx xxxxx xxxxx xxxxx"
7. Upon reading the said provisions, Mr Sanjay Jain, the learned senior counsel appearing on behalf of the petitioners, submitted that the licence fee stipulated in Rule 46 is ultra vires the provisions of Section 20 of the said Act. He submitted that a plain reading of Section 20 indicates that a book maker requires a licence. The licence is to be obtained from the Commissioner in the form and manner prescribed. He submitted that there is no reference to any fee. He also submitted that the said provision, i.e., Section 20 appears in Chapter IV of the said Act. The said Chapter pertains to Totalizator and Betting Tax. It has no reference to any fee. He further submitted that Section 45 (2) (l) also indicates that the Government can make rules providing for the prescription of the form and the manner for obtaining book maker‟s WP(C) 2752/98 Page No. 5 of 13 licence. It does not refer to any fees for the grant of a licence. The learned counsel submitted that the words "form" and "manner" do not entail any prescription for charge of a fee.
8. On the other hand, Ms Avnish Ahlawat appearing on behalf of the respondents, submitted that the said Act prescribed that before a person could act as a book maker, in terms of Section 20, a licence was required to be obtained by him in the form and manner prescribed. She submitted that Section 45(2)(l) empowered the Government to prescribe the form and manner for obtaining a book maker‟s licence. She also laid great stress on sub-Section (3) of Section 45 which provides that the rules made by the State Government be laid before the House of Legislative Assembly. She submitted that once this procedure was followed, then the rules attained a statutory flavour and had the effect of a legislative enactment and, therefore, there was nothing wrong with Rule 46 (3) & (4) in prescribing a fee for the grant or renewal of a licence. She submitted that the said rule prescribing a fee for the grant of a licence for a book maker was as good as a provision having been made in the statute and, therefore, there was no question of Rule 46 (4) being ultra vires the provisions of the said Act. The learned counsel referred to the decision of the Supreme Court in the case of Jindal Stainless Limited (2) and Another v. State of Haryana and Others: 2006 (7) SCC 241. In that decision, the WP(C) 2752/98 Page No. 6 of 13 Supreme Court, inter alia, dealt with the difference between a tax, a fee and a compensatory tax. Para 45 of the said decision, which sums up the law on the subject, reads as under:-
"45. To sum up, the basis of every levy is the controlling factor. In the case of "a tax", the levy is a part of common burden based on the principle of ability or capacity to pay. In the case of "a fee", the basis is the special benefit to the payer (individual as such) based on the principle of equivalence. When the tax is imposed as a part of regulation or as a part of regulatory measure, its basis shifts from the concept of "burden" to the concept of measurable/quantifiable benefit and then it becomes "a compensatory tax" and its payment is then not for revenue but as reimbursement/ recompense to the service/facility provider. It is then a tax on recompense. Compensatory tax is by nature hybrid but it is more closer to fees than to tax as both fees and compensatory taxes are based on the principle of equivalence and on the basis of reimbursement/recompense. If the impugned law chooses an activity like trade and commerce as the criterion of its operation and if the effect of the operation of the enactment is to impede trade and commerce then Article 301 is violated."
9. However, we do not see as to how these observations with regard to the distinction between a fee and a tax would be relevant in the present context when the argument is that the licence fee sought to be charged from the petitioners under Rule 46(4) of the said Rules is ultra vires the said Act. Ms Ahlawat also referred to the decision of the Supreme Court in the case of the State of Karnataka and Another v. B. Suvarna Malini and Another: 2001 (1) SCC 728. In the said decision, the Supreme Court, inter alia, considered sub-Section (3) of Section 8 of the Karnataka State Civil Services Act, 1978, wherein, a similar WP(C) 2752/98 Page No. 7 of 13 provision as that contained in Section 45(3) of the said Act with regard to the requirement of laying the rules before the State Legislature was provided for. In the context of the said provision, the Supreme Court noted that the requirement of laying the rules before the State Legislature having been duly complied with, the rule would be legislative in character and would have the force as if the State Legislature had framed the rules. Thus, according to Ms Ahlawat, the provision of Rule 46(4), which prescribed the licence fee for book makers, was beyond the pale of challenge on the ground of it being ultra vires the said Act. Of course, in the context of the decision of the Supreme Court in Jindal Stainless (supra), arguments had been advanced by the counsel for the parties with regard to the nature of the fee sought to be collected under Rule 46(4) of the said Rules. It had been contended on behalf of the petitioners that the said Act only pertained to collection of tax and the preamble did not indicate any object of regulation. So, the fee under Rule 46(4), which was definitely not a tax, would clearly be ultra vires the said Act. On the other hand, it was sought to be contended by Ms Ahlawat that it was more in the nature of a regulatory and compensatory tax. But, as pointed out earlier, we need not enter into that arena of controversy inasmuch as we have to only examine as to whether upon a plain reading of the provisions themselves, the fee sought to be charged under Rule 46(4) is intra vires or ultra vires the said Act and as to whether, once the rules WP(C) 2752/98 Page No. 8 of 13 have been laid before the Legislative Assembly, they would be open to such a challenge.
10. Upon a plain reading of the provisions, it is more than clear that Section 20 of the said Act does not contemplate the charge of a fee. It merely prescribes that no person shall act as a book maker unless he obtains a licence from the Commissioners. The licence is to be in the form and manner prescribed. In our opinion, the expression "form" and "manner" cannot be read to include a prescription for levying a fee. The statute must specifically entail levy of a tax or a fee. Even if it is to be left to the rule making power of the Government, the statute must say so. Section 45(2)(l) merely empowers the Government to make rules with regard to the prescription of the form and manner for obtaining a book maker‟s licence. Section 45(1), which speaks of general rule making power of the Government, also relates to the carrying out of the purposes of the Act. Nowhere in the Act has it been prescribed that for the purposes of obtaining a licence, a book maker has to pay a fee.
11. Thus, the requirement of licence fee contained in Rules 46(3) and 46(4) is beyond the provisions of the said Act and was definitely not within the rule making powers of the State Government as contemplated under Section 45 of the said Act.
WP(C) 2752/98 Page No. 9 of 13
12. As regards the importance of a provision such as that contained in Section 45(3), which prescribes that the rules made under the Act should be laid before the House of the Legislative Assembly of the National Capital Territory of Delhi, it is true that once such procedure is followed, as pointed out in State of Karnataka v. B. Suvarna Malini (supra), the rules themselves attain a legislative character and would have force as if the State Legislature had framed the rules. But, this does not mean that the rules would be immune to any challenge as being ultra vires the Act. This has been made clear by the Supreme Court in Hukam Chand etc. v. Union of India and Others: 1972 (2) SCC 601. The provision in consideration before the Supreme Court was Section 40(3) of the Displaced Persons (Compensation and Rehabilitation) Act, 1954. The said Section 40(3) of that Act was in pari materia to Section 45(3) of the Act in consideration before us. The supreme Court observed as under:-
"The fact that the rules framed under the Act have to be laid before each House of Parliament would not confer validity on a rule if it is made not in conformity with Section 40 of the Act. It would appear from the observations on pages 304 to 306 of the Sixth Edition of Craies on Statute Law that there are three kinds of laying :
(i) laying without further procedure;
(ii) laying subject to negative resolution;
(iii) laying subject to affirmative resolution. WP(C) 2752/98 Page No. 10 of 13
The laying referred to in Sub-section (3) of Section 40 is of the second category because the above Sub-section contemplates that the rules would have effect unless modified or annulled by the Houses of Parliament. The act of the Central Government in laying the rules before each House of Parliament would not, however, prevent the courts from scrutinising the validity of the rules and holding them to be ultra vires if on such scrutiny the rules are found to be beyond the rule making power of the Central Government."
13. It is clear that the act of the State Government in laying the rules before the House of the Legislative Assembly does not prevent the courts from scrutinizing the validity of the rules and holding them to be ultra vires, if on such scrutiny, the rules are found to be beyond the rule making powers of the State Government.
14. A Constitution Bench of the Supreme Court in the case of Kerala State Electricity Board v. The Indian Aluminium Co. Ltd: 1976(1) SCC 466, inter alia, observed in paragraph 25 thereof as under:-
"... In India many statutes both of Parliament and of State Legislatures provide for subordinate legislation made under the provisions of those statutes to be placed on the table of either the Parliament or the State Legislature and to be subject to such modification, amendment or annulment, as the case may be, as may be made by the Parliament or the State Legislature. Even so, we do not think that where an executive authority is given power to frame subordinate legislation within stated limits, rules made by such authority if outside the scope of the rule making power should be deemed to be valid' merely because such rules have been placed before the legislature and are subject to such modification, amendment or annulment, as the case may be, as the legislature may think fit. The process of such amendment, modification or WP(C) 2752/98 Page No. 11 of 13 annulment is not the same as the process of legislation and in particular it lacks the assent either of the President or the Governor of the State, as the case may be. We are, therefore, of opinion that the correct view is that notwithstanding the subordinate legislation being laid on the table of the House of Parliament or the State Legislature and being subject to such modification, annulment or amendment as they may make, the subordinate legislation cannot be said to be valid unless it is within the scope of the rule making power provided in the statute."
15. It is, therefore, beyond any controversy that notwithstanding the said rules having been laid on the table of the House of the Legislative Assembly, subordinate legislation in the shape of the said rules cannot be said to be valid unless it is within the scope of the rule making power provided in the statue. This clearly negates the plea raised by the learned counsel for the respondents that the said rules having been laid before the Legislative Assembly imply that the rules and in particular Rule 46 attained a statutory flavour and could, therefore, not be challenged as being ultra vires the Act.
16. For the aforesaid reasons, we accept the plea raised on behalf of the petitioners and declare that the imposition of licence fee under the provisions of Rule 46 of the said Rules is ultra vires the said Act and, in particular, Sections 20 and 45 thereof. No such fee can be charged in respect of licences granted to book makers inasmuch as there is no specific provision for the same in the said Act. Consequently, the writ WP(C) 2752/98 Page No. 12 of 13 petition is allowed. The impugned letter dated 05.05.1998 and any subsequent letter demanding licence fee from the petitioners for licences to operate as book makers by the respondent No.2 are quashed. The parties are left to bear their own costs.
BADAR DURREZ AHMED, J RAJIV SHAKDHER, J April 15, 2009 dutt WP(C) 2752/98 Page No. 13 of 13