Sikkim High Court
Ms. Shubh Enterprises vs Union Of India And Ors on 14 October, 2015
Author: Meenakshi Madan Rai
Bench: Meenakshi Madan Rai
THE HIGH COURT OF SIKKIM : GANGTOK
(Civil Extraordinary Jurisdiction)
Dated : 14.10.2015
D.B. : HON'BLE MR. JUSTICE SONAM PHINTSO WANGDI, JUDGE
HON'BLE MRS. JUSTICE MEENAKSHI MADAN RAI, JUDGE
W.P. (C) NO. 41 OF 2013
Petitioner : M/s. Shubh Enterprises,
201, First Floor,
Ashoka Shopping Centre,
GT Hospital Complex,
L.T. Road,
Mumbai - 400001.
Versus
Respondents : 1. The Union of India
Through its Secretary,
Ministry of Home Affairs,
North Block, Central Secretariat,
New Delhi - 110001.
2. State of Sikkim,
Through Principal Secretary,
Finance, Revenue and
Expenditure Department,
Government of Sikkim,
Gangtok,
East Sikkim.
3. Director of State Lotteries,
Government of Sikkim,
Baluwakhani,
Gangtok,
East Sikkim.
Proforma 4. State of Mizoram,
Respondent : Acting Through the Governor of
the State, Acting Through the
Secretary,
Finance Department.
M/s Shubh Enterprises Vs. Union of India & Ors. 2
WP (C ) No. 41 of 2013
Application under Article 226 and 227
of the Constitution of India.
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Appearance:
Mr. A. R. Madhavrao, Advocate with Mrs. Laxmi
Chakraborty, Mr. Rajat Mittal, Ms. Rogena Gurung and
Ms. Nandita Narayan, Advocates for the Petitioner.
Mr. Kaushik Chanda, Additional Solicitor General with Mr.
Karma Thinlay Namgyal, Central Government Counsel
with Mr. Thinlay Dorjee Bhutia and Mr. D. K. Siwakoti,
Advocates for Respondent No.1.
Mr. J. B. Pradhan, Additional Advocate General with Mr.
S. K. Chettri and Mrs. Pollin Rai, Assistant Government
Advocates for Respondent Nos. 2 and 3.
Ms. Ranjita Kumari and Ms. Babita Rai, Advocates for
Respondent No.4.
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JUDGMENT
Following Judgment of the Court was delivered by Wangdi, J.
1. The Petitioner is the distributer of tickets of lottery organised by the State of Mizoram and is contractually liable to pay taxes such as Sales Tax, VAT and other charges levied by various states on lotteries. Lottery tickets are sold by the State of Mizoram both within and outside in other states including the state of Sikkim which is the Respondent No.2.
M/s Shubh Enterprises Vs. Union of India & Ors. 3 WP (C ) No. 41 of 2013
2. It is stated that the Lotteries (Regulation) Act, 1998 (hereinafter referred to as "Central Act") was enacted by the Parliament under Entry 40 of List-1 of the Seventh Schedule of the Indian Constitution. Entry 40 in List-1 is an administrative/regulatory entry providing for the regulation of lotteries organised by the Government of India or the Government of a State. Under Section 4 of the Act, the conditions to be followed by any State Government seeking to organise, conduct and promote lotteries are prescribed. Section 5 vests the State Government with the power to prohibit within the state, the lotteries conducted by another state. Section 6 empowers the Central Government to prohibit lotteries organised by any State. Section 7 of the Act is a penal provision and provides for the imposition of penalty on lotteries conducted in the contravention of any of the provisions of the Act. Section 8 of the Act provides that offences under the Act would be cognisable and non- bailable. Section 9 of the Act deals with the commission of offences by companies. Section 10 of the Act empowers the Central Government to issue directions to any State Government for carrying into execution, any of the provisions of the Act or rule made therein. Section 11 M/s Shubh Enterprises Vs. Union of India & Ors. 4 WP (C ) No. 41 of 2013 empowers the Central Government to make rules to carry 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 Rs.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 M/s Shubh Enterprises Vs. Union of India & Ors. 5 WP (C ) No. 41 of 2013 "impugned Notification") filed as Annexure P4, under Rule 3(11) (referred to as the "impugned Rule") by which an amount of Rs.2000/- (Rupees two thousand) per draw is charged upon the State of Mizoram for draws conducted by it within that state for the lotteries sold in the state of Sikkim, the Respondent No. 2, through its distributors. It is stated that the direct incidence of this charge is on the Petitioner since contractually, the Petitioner is liable to pay all State charges and taxes.
5. M/s N. V. International distributor for lotteries organised by State of Mizoram entered into an agreement with M/s Future Gaming Solutions Pvt. Ltd, whereby the latter agreed to render full assistance in managing local activities in the state of Mizoram. In terms of Clause (xiii) of the said agreement, the Future Gaming Solutions India Pvt. Ltd. is contractually liable to pay all State taxes, licence fees and other charges as imposed by the states from time to time. By another contract agreement entered into with M/s Future Gaming Solutions India Pvt. Ltd., the Petitioner, M/s Shubh Enterprises, was allowed as a promoter to sell lottery tickets in all states where lotteries are permitted. Clause 2(c) of the said agreement renders the Petitioner liable for the payment of state and central M/s Shubh Enterprises Vs. Union of India & Ors. 6 WP (C ) No. 41 of 2013 taxes imposed by law from time to time. It is thus stated that the incidence of the charge imposed by the impugned Notification falls on the Petitioner.
6. The first ground set up for assailing Rule 3(11) of the Lotteries (Regulation) Rules, 2010 is that the amount charged on the draw cannot be levied on the draws conducted in the state of Mizoram. There is no provision in the Lotteries (Regulation) Act, 1998 prescribing the levy of any tax, fee or charge.
7. It is contended that Entry-40 of List-1 is an administrative entry that provides for the regulation of lotteries conducted both by the Centre and the State. The Lotteries (Regulation) Act, 1998 was enacted by the Parliament taking recourse to entry 40 of List-1. There is no provision in the Act for the levy of any sort of tax or fee or compulsory charge by any State on the organising State. The central rules were framed under Section 11(1) of the Central Act to carry out the provisions thereof.
8. Relying upon the State of West Bengal vs. Kesoram Industries Ltd. And Others. : (2004) 10 SCC 201, it was submitted that Entry 40 List-1 of the Seventh M/s Shubh Enterprises Vs. Union of India & Ors. 7 WP (C ) No. 41 of 2013 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 bye- law, 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 M/s Shubh Enterprises Vs. Union of India & Ors. 8 WP (C ) No. 41 of 2013 cannot go beyond the parent Act and confer powers not prescribed in the parent Act.
11. It is re-emphasised that the present charge is without any statutory sanction having been levied solely on the basis of the impugned Notification issued under the Lotteries (Regulation) Rules, 2010. It is thus submitted that the charge prescribed by rule 3(11) of the Central rules is ultra vires the power conferred by the provision of the Lotteries (Regulation) Act, 1998. The impugned Notification issued by the State of Sikkim, the Respondent No.2, under the impugned rule 3(11) of the Central Rules is also ultra vires the Lotteries (Regulation) Act, 1998 and is liable to be struck down.
12. It is next contended that even otherwise the imposition of Rs.2000/- per draw taking place in Mizoram has no nexus with sale of lottery tickets in Sikkim. As per the Petitioner, the only activity happening in Sikkim is the sale of lottery tickets for which the draw is conducted in the state of Mizoram. While sale of lottery of tickets is not being subjected to any charge, it is the draw conducted outside territory of the state that is being charged instead. It is asserted that there is no connection between the M/s Shubh Enterprises Vs. Union of India & Ors. 9 WP (C ) No. 41 of 2013 event of daw in Mizoram and the sale of tickets in Sikkim. That, the sale of tickets has no reasonable nexus between the charge imposed by the Respondent State and the draw conducted outside the State of Sikkim. In support this contention reliance was placed on the Judgment of State of Rajasthan vs. Rajasthan Chemists Association : 2006 (202) ELT 217 (SC) and Lokmanya Mills Barsi Ltd. vs. Barsi Borough Municipality : AIR 1961 SC 1358.
13. It is then contended, even if it is assumed that the charge imposed in the present case is actually on the sale of tickets, then it is actually a sales tax on the sale of lottery tickets in the garb of a charge on the draw when imposition of sale sales tax is not permissible following the decision in Sunrise Associates vs. Govt. of NCT Delhi :
(2004) 5 SCC 603. The case of Manunatha Agency vs. State of Karnataka: W.A. 2131-2132/2007 was also referred to whereby the constitutional validity of Karnataka Tax on Lotteries Act, 2004 was struck down holding that it was a colourable legislation as it sought to impose sales tax on the sale of lottery tickets by indirectly taxing the draws conducted outside the state by organizing States.
M/s Shubh Enterprises Vs. Union of India & Ors. 10 WP (C ) No. 41 of 2013
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) Act, 1998 and Entry 40 List-1 of the Schedule VII to the Constitution M/s Shubh Enterprises Vs. Union of India & Ors. 11 WP (C ) No. 41 of 2013 of India apart from it being violative of Articles 14 and 19 of the Constitution of India.
17. In the Counter Affidavit filed by the Secretary, Ministry of Home Affairs, Government of India, it has been asserted that the Lottery (Regulation) Act, 1998 was enacted by the Parliament under Entry 40 of List 1 of the Seventh Schedule to the Constitution. The impugned rules were framed in exercise of the powers conferred under sub section1 of Section 11 if the Lotteries (Regulation) Act, 1998. The impugned Rule i.e., Sub-rule 11 of Rule 3 of the Lotteries (Regulation) Rules, 2010, empowers the state government under whose jurisdiction the lottery tickets of other state are being sold, to charge a minimum amount of Rs.2000/- per draw from the organising state. The State Government of Sikkim, Respondent No.2, issued the impugned Notification under that Rule charging Rs.2000/- (Rupees two thousand) per draw from the organising State in respect of lotteries of other States sold within State of Sikkim.
18. It is stated that the Acts are intentions of law governing provisions of fees, penalties and the way it is applied. The rules are made to carry out the provisions M/s Shubh Enterprises Vs. Union of India & Ors. 12 WP (C ) No. 41 of 2013 of the concerned Act. It is asserted that lotteries organised by the government of India or the states is a matter falling under the union list at Entry 40 of List 1 of the Seventh Schedule to the Constitution.
19. Apart from the above, nothing further of substance have been stated other than contending that the grounds set out in the Writ Petition being matters of interpretation of law, necessary submissions would be made at the time of hearing.
20. The counter affidavit filed on behalf of the State of Sikkim and the Director of Sikkim State Lotteries Respondents No. 2 and 3 respectively reiterate the same assertions made in the counter affidavit filed on behalf of Respondent No.1.
21. During the course of the arguments Mr. A. Madhav Rao, Learned Counsel appearing on behalf of the Petitioner, re-emphasised what have been set out in the Writ Petition which have been dealt with in detail earlier. His primary contention was that rule 3(11) of the Lotteries (Regulation) Rules, 2010 was in excess and dehors the parent statute, i.e. the Lotteries (Regulation) Act, 1998. It was submitted by him that there is no provision in the M/s Shubh Enterprises Vs. Union of India & Ors. 13 WP (C ) No. 41 of 2013 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 legislate. Entries 82 to 92 enumerate the taxes which could be imposed by a law of Parliament. An examination of these two groups of entries shows that while the main subject of legislation figures in the first group, a tax in relation thereto is separately mentioned in the second.
2. In List II Entries 1 to 44 form one group mentioning the subjects on which the States could legislate. Entries 45 to 63 in that list form another group, and they deal with taxes. (AIR p.493, para 51)
3. Taxation is not intended to be comprised in the main subject in which it might on an extended construction be regarded as included, but is treated as a distinct matter for purposes of legislate competence. And this distinction is also manifest in the language of Article 248 Clauses (1) M/s Shubh Enterprises Vs. Union of India & Ors. 14 WP (C ) No. 41 of 2013 and (2) and of Entry 97 in List I of the Constitution. Under the Scheme of the entries in the lists, taxation is regarded as a distinct matter and is separately set out. (AIR p. 494, paras 51 &
55)."
22. The Learned Counsel would also refer to the decision of M/s Future Gaming Solutions India Pvt. Ltd. vs. Union of India (supra) on the legal proposition that power to tax is not an incidental power and that under the residuary power the Parliament will be entitled to impose tax only if that power is not specifically vested in the State Legislature by any entry in List II of the Seventh Schedule. We may re-produce the following passage referred to by him:-
"(II) ........................................................
"(t) It is also settled legal position that where the entries under different Lists empower the respective Legislatures to enact law on any subject-matter and the question arises regarding the legislative competence of the legislative bodies, the doctrine of pith and substance is to be applied to find out the real intention of the legislative entry and the object of enacting a law. As observed in State of West Bengal v. Kesoram Industries Ltd.(supra) MANU/SC/0038/2004 : [2004] 266 ITR 721 (SC) : [2004] 10 SCC 201, if any law enacted by Parliament is not traceable to any legislative entry in List II or List III, it is irrelevant whether the power of the Parliament is traceable to a specific entry and Parliament shall be deemed to have legislative competence. Its natural corollary would be if power to enact law on a subject-matter including levy of taxes is traceable 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.
M/s Shubh Enterprises Vs. Union of India & Ors. 15 WP (C ) No. 41 of 2013 (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 parent act.
24. The other argument which the learned Counsel placed was that the imposition of charge at the rate of Rs.2000/- (Rupees two thousand) per draw for draws taking place in the State of Mizoram has no nexus with the sale of lottery tickets in the state of Sikkim. Having regard to the fact that under Section 4(g) of the Lotteries (Regulation) Act, 1998 which mandates that the place of draw shall be located within the state concerned, in the M/s Shubh Enterprises Vs. Union of India & Ors. 16 WP (C ) No. 41 of 2013 present case the draw is admittedly happening in the state of Mizoram. The only activity taking place in the state of Sikkim is the sale of lottery tickets. The sale of lottery tickets is not subject to any charge but draw conducted outside the state is. Even if assuming that the charge imposed vide the impugned Notification is actually on the sale of lottery tickets in the garb of a charge on a draw, it is still impermissible in view of the decision of the Hon'ble Supreme Court in Sunrise Associates (supra). Mr. A. Madhavrao further went on to submit that the impugned Notification suffers from the vice of extra territorial operation since draws taking place in the state of Mizoram is being charged by the state of Sikkim only because of the sale of lottery tickets. The impugned Notification would also be violative to Article 245 of the Constitution.
25. For the aforesaid reasons, it was the submissions of the Learned Counsel that the impugned Rule 3(11) and the impugned Notification were ultra vires deserving to be struck down.
26. Mr. Kaushik Chanda, Learned Additional Solicitor General, appearing on behalf of the Respondent No.1, in his argument submitted that the Petitioner has proceeded M/s Shubh Enterprises Vs. Union of India & Ors. 17 WP (C ) No. 41 of 2013 on the premises that the charge prescribed under the impugned Rule is a tax which as per him was erroneous when actually it was in the nature of fees. The fee is regulatory in nature and the power to levy that is traced to entry 96 of List 1 of the Seventh Schedule to the Constitution of India and not the Lotteries (Regulation) Act, 1998. The authorities cited on behalf of the Petitioner, as per him, deal with state laws but in the present case it is a Parliamentary Law that is involved. The object of the Lotteries (Regulation) Act, 1998 is to regulate which also provides for the power to frame rules. In a regulatory provision, it is not necessary that there should be an incidence of service or 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 Rs. 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 M/s Shubh Enterprises Vs. Union of India & Ors. 18 WP (C ) No. 41 of 2013 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 management of horse racing. Such a regulation is necessary in public interest to control the act of betting and wagering as well as to promote the sport in the Indian context. To achieve this purpose, licences are issued subject to compliance with the conditions laid down therein, which inter alia include maintenance of accounts and furnishing of periodical returns; amount of stakes which may be allotted for different kinds of horses; the measures to be taken for the training of the persons to become jockeys, to encourage Indian-bred horses and Indian jockeys; the inclusion and association of such persons as the Government may nominate as stewards or members in the conduct and management of horse racing. The violation of the conditions of the licence or the Act is penalised under the Act besides a provision for congnizance by a court not inferior to a Metropolitan Magistrate. To ensure compliance with these conditions, the 1985 Rules empower the District Officer or an Entertainment Tax Officer to conduct inspection of the race Club at reasonable times. Thus, the nature of the impost is not merely compulsory exaction of money to augment the revenue of the State but its true object is to regulate, control, manage and encourage the sport of horse racing as is distinctly spelled out in the Act and the 1985 Rules. For the purpose of enforcement, wide powers are conferred on various authorities to enable them to supervise, regulate and monitor the activities relating to the racecourse with a view to secure proper enforcement of the provisions. Therefore, by applying the principles laid down in the aforesaid decisions, it is clear that the said levy is a "fee" and not a "tax".
36. The appellants have also challenged the nature of the impost, as according to them it is a tax imposed under the guise of a fee, since there is no quid pro quo or any broad correlation between the impost M/s Shubh Enterprises Vs. Union of India & Ors. 19 WP (C ) No. 41 of 2013 and the services rendered in return, rather, there is no service in return at all. While it is true that "quid pro quo" is one of the determining factors that sets apart "tax" from a "fee" but the concept of quid pro quo requires to be understood in its proper perspective. It can be traced back to the decision of this Court in Sreenivasa General Traders v. State of A.P.[(1983) 4 SCC353] wherein a Bench of three learned Judges, analysed, in great detail, the principles culled out in Kewal 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 tax. In regard to fees there is, and must always be, correlation between the fee collected and the service intended to be rendered. In determining whether a levy is a fee, the true test must be whether its primary and essential purpose is to render specific services to a specified area of class; it may be of no consequence that the State may ultimately and indirectly be benefited by it. The power of any legislature to levy a fee is conditioned by the fact that it must be 'by and large' a quid pro quo for the services rendered. However, correlationship between the the levy and the services rendered (sic or) expected is one of general character and not of mathematical exactitude. All that is necessary is that there should be a M/s Shubh Enterprises Vs. Union of India & Ors. 20 WP (C ) No. 41 of 2013 'reasonable relationship' between the levy of the fee and the services rendered...
32. There is no generic difference between a tax and a fee. Both are compulsory exactions of money by public authorities. Compulsion lies in the fact that payment is enforceable by law against a person in spite of his unwillingness or want of consent. A levy in the nature of a fee does not cease to be of that character merely because there is an element of compulsion or coerciveness present in it, nor is it a postulate of a fee that it must have direct relation to the actual service rendered by the authority to each individual who obtains the benefit of the service. It is now increasingly realised that merely because the collections for the services rendered or grant of a privilege or licence are taken to the consolidated fund of the State and not separately appropriated towards the expenditure for rendering the service is not by itself decisive. Presumably, the attention of the Court in Shirur Mutt case [AIR 1954 SC 282 : 1954 SCR 1005] was not drawn to Article 266 of the constitution. The Constitution nowhere contemplates it to be an essential element of fee that it should be credited to a separate fund and not to the consolidated fund. It is also increasingly realised that the element of quid pro quo in the strict sense is not always a sine qua non for a fee. It is needless to stress that the element of quid pro quo is not necessarily absent in every tax..."
"7. It is not always possible to work out with mathematical precision the amount of fee required for the services to be rendered each year and to collect only just that amount 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 M/s Shubh Enterprises Vs. Union of India & Ors. 21 WP (C ) No. 41 of 2013 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 rendering specific services, a certain element of quid pro quo must be there between the service rendered and the fee charged so that the licence fee is commensurate with the cost of rendering the service although exact arithmetical equivalence is not expected. However, this is not the only kind of fee which can be charged. Licence fee can also be regulatory when the activities for which a licence is give require to be regulated or controlled. The fee which is charged for regulation for such activity would be validly classifiable as a fee and not a tax although no service is rendered. An element of quid pro quo for the levy of such fees is not required although such fees cannot be excessive.
.............................................................
42. Thus, it is clear that a licence fee imposed for regulatory purposes is not conditioned by the fact that there must be a quid pro quo for the services rendered, but that, such licence fee must be reasonable and not excessive...............................................................
43. ........ Hence, in our opinion, the licence fee imposed in the present case is a regulatory fee and need not necessarily entail rendition of specific services in M/s Shubh Enterprises Vs. Union of India & Ors. 22 WP (C ) No. 41 of 2013 return but at the same time should not be excessive.............................................................."
27. It is thus contended that the submissions made on behalf of the Petitioner was fallacious and, therefore, the Writ Petition deserved to be dismissed.
28. We have carefully considered the rival contentions, the pleadings and the documents on record and we are of the view that the Writ Petition deserves to be allowed for the reasons that follow.
29. 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 M/s Shubh Enterprises Vs. Union of India & Ors. 23 WP (C ) No. 41 of 2013 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. After giving our anxious consideration to the contentions raised by Mr. Goswami, it appears to us that in a fiscal matter it will not be proper to hold that even in the absence of express provision, a delegated M/s Shubh Enterprises Vs. Union of India & Ors. 24 WP (C ) No. 41 of 2013 authority can impose tax or fee. In our view, such power of imposition of tax and/or fee by delegated authority must be very specific and there is no scope of implied authority for imposition of such tax or fee. It appears to us that the delegated authority must act strictly within the parameters of the authority delegated to it under the act and it will not be proper to bring the theory of implied intent or the concept of incidental and ancillary power in the matter of exercise of fiscal power. The facts and circumstances in the case of District Council of Jowai, (AIR 1986 SC 1930) are entirely different. The exercise of powers by the Autonomous Jantia Hill Districts are controlled by the Constitutional provisions and in the special facts of the case, this Court has indicated that the realisation of just fee for a specific purpose by the autonomous District was justified and such power was implied. The said decision cannot be made applicable to the facts of this case or the same should not be held to have laid down any legal proposition that in matters of imposition of tax or fees, the question of necessary intendment may be looked into when there is no express provision for imposition of fee or tax. The other decision in Khargram Panchayat Samiti's case, (1987 (3) SCC 82) also deals with the exercise of incidental and consequential power in the field of administrative law and the same does not deal with the power of imposing tax and fee.
7. The High Court has referred to the decisions of this Court in Hingir's case, (AIR 1961 SC 459) and Jagannath Ramanuj's case, (AIR 1954 SC 400) and Delhi Municipal Corporation's case (AIR 1983 SC 617) (supra). It has been consistently held by this Court that whenever there is compulsory exaction of any money, there should be specific provision for the same and there is no room for intendment. Nothing is to be read and nothing is to be implied and one should look fairly to the language used. We are, therefore, unable to accept the contention of Mr. Goswami. Accordingly, there is no occasion to interfere with the impugned decision of the High Court. The appeal, therefore, fails and is dismissed with no order 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.
M/s Shubh Enterprises Vs. Union of India & Ors. 25 WP (C ) No. 41 of 2013
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 Act, is in force and, Section 4 where under the owner, lessee or occupier of racecourse was permitted to apply to the Government for horse racing on such racecourse, etc. Section 11 of the Act also fell for M/s Shubh Enterprises Vs. Union of India & Ors. 26 WP (C ) No. 41 of 2013 consideration under which the Government was vested with the power to make rules for the purpose of carrying into effect the provisions of the Act.
35. Thus the very Act provided the power to frame Rules for fixing licence fees for horse racing. Accordingly, Delhi Race Course Licensing Rules, 1985 (in short "the 1985 Rules") was framed where under Rule 6 prescribed the licence fees at varying rates on the races to be held per day and for renewal of license for various purposes connected with horse racing. The Rules were certainly not made under Entry 96 of List I of the Seventh Schedule to the Constitution as contended by the Learned Additional Solicitor General.
36. The question that fell for consideration in the case was as to whether "(i) delegation of powers under Section 11 of the Act to the Lt. Governor, to fix the licence fee without any guidelines is excessive delegation of legislative power and is therefore, ultra vires. (ii) in the absence of an element of quid pro quo, the licence fee charged was not in the nature of a fee but a tax, and (iii) the tenfold increase in licence fee was highly excessive."
M/s Shubh Enterprises Vs. Union of India & Ors. 27 WP (C ) No. 41 of 2013
37. It was in the light of the above questions that the findings referred to by the Learned Additional Solicitor General reproduced extenso earlier was rendered. The decision therefore, would clearly not apply to the facts of the present case.
38. Apart from the above, we find it difficult to reconcile with the charge being imposed for draws taking place at Mizoram by the state of Sikkim for the sale of lotteries within its territory. The Notification appears to be conferring extra-territorial authority upon the state of Sikkim, which in our view would be impermissible considering the trite position on this. We are persuaded to accept the view of the Hon'ble High Court of Bombay expressed in Writ Petition No. 129 of 2001 in the matter of Jeevan Kumar SitaramSondhi (supra), wherein on facts somewhat similar to the present case, it was held that "under the amending Act, the tickets sold outside the state of Maharashtra would also be taxed by the State of Maharashtra on the basis of the draw which takes place outside 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 M/s Shubh Enterprises Vs. Union of India & Ors. 28 WP (C ) No. 41 of 2013 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.
............................................................
22. Conducting of lottery would mean preparation of a scheme of numbering of tickets, naming of tickets, printing of tickets, sale of tickets through distributors and publishing the results in the State Gazette. All these activities except sale of tickets takes place outside the State of Karnataka. Sale of tickets can also take place in various States as long as there is no ban on the sale of tickets in those States. In case, more than one State makes a similar law as involved in this case and it tax has to be imposed on every draw, the State which organises the lottery and conducts draw of the lottery may have to shell down tax to several States. Then the very purpose of holding organised lotteries by Union of India or by a State M/s Shubh Enterprises Vs. Union of India & Ors. 29 WP (C ) No. 41 of 2013 to augment income which ultimately be used for public at large is lost........................................
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24. From 1.4.2007 the State of Karnataka declared a lottery free zone for the purpose of sale of tickets of lotteries organised by the State Government including lotteries organised by the State of Karnataka. Thus organising States can organise their lotteries and also can sell their tickets in other lottery operating States. By this, there is no sale of lottery ticket in the State of Karnataka and therefore, there is no tax levied under Section 6 of the State Act. In such a situation, the other States will be organising and conducting their lotteries and even holding draws. Then indirectly it would mean, it is a tax on sale of lottery tickets and it cannot be said to be a tax on lottery, per draw. The law declared in Sunrise Associates in no tax can be levied on sale of lottery tickets since there is no sale of goods. The expression of 'sale' is not used though it is tax on sale of lottery tickets under the guise of tax per draw. The actual charging event, the levy and the nature of charge when examined indicates the only event that happens in Karnataka is sale of ticket and nothing else. Though the act is created to declare the State of Karnataka as other State lottery free zone but infact it is not so. As a matter of fact, the respondent/State has no expenditure either in the conduct of lotteries or on the holding of draw of the other State lotteries. There is nothing to be compensated to the State 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 stands hereby quashed as being ultra vires the provisions of the Lotteries (Regulation) Act, 1998.
(iii) Writ of Prohibition do issue prohibiting the Respondents from giving effect to Rule 3(11) of the Lotteries (Regulation) Rules, 2010 and Notification No. 380/FIN/DSSL/ 431 dated 6.8.2010.
AND
(iv) The Respondent State do refund all amounts paid by the Petitioner thus far under the aforesaid impugned Rule and the impugned Notification.
M/s Shubh Enterprises Vs. Union of India & Ors. 31 WP (C ) No. 41 of 2013
43. In the result, the Writ Petition is allowed.
44. No order as to costs.
( M. M. Rai ) ( S. P. Wangdi )
Judge Judge
14.10.2015 14.10.2015
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