IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE THOTTATHIL B.RADHAKRISHNAN & THE HONOURABLE MR. JUSTICE P.BHAVADASAN THURSDAY, THE 14TH OCTOBER 2010 / 22ND ASWINA 1932 WA.No. 1470 of 2010() --------------------- AGAINST THE JUDGEMENTIN WPC.25632/2010 DATED 30/08/2010 .................... APPELLANTS: 7TH RESPONDENT ---------------------------------------------- ROYAL GOVERNMENT OF BHUTAN, MINISTRY OF FINANCE, DIRECTORATE OF LOTTERIES, PHUENTSHOLING, BHUTAN. BY SRI.RAJEEV NAYYAR, SENIOR ADVOCATE SRI.ABHISHEK MANU SIGHVI, SENIOR ADVOCATE SRI.A.M.SHAFFIQUE, SENIOR ADVOCATE SRI.HARISANKAR V. MENON RESPONDENTS: RESPONDENTS ----------------------------------------------- 1. STATE OF KERALA, REPRESENTED BY ITS CHIEF SECRETARY, GOVT. OF KERALA, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM-01. 2. SECRETARY, TAXES (H) DEPARTMENT, GOVT. OF KERALA, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM-01. 3. COMMISSIONER OF COMMERCIAL TAXES, COMMERCIAL TAXES DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM-01. 4. THE DIRECTOR, KERALA STATE LOTTERIES, GOVT. OF KERALA, THIRUVANANTHAPURAM-01. 5. THE DEPUTY COMMISSIONER, COMMERCIAL TAXES DEPARTMENT, PALAKKAD-14. 6. THE ASSISTANT COMMISSIONER (ASSESSMENT), COMMERCIAL TAXES, SPECIAL CIRCLE, PALAKKAD-14. WA1470/10 - 2 - 7. A.JOHN KENNEDY, PROPRIETOR, MEGHA DISTRIBUTOR, OFFICE AT 15/650, KUNNATHURMEDU, COIMBATORE MAIN ROAD, PALAKKAD-13. 8. STATE OF SIKKIM, DIRECTOR OF SIKKIM STATE LOTTERIES, GANGTOK, SIKKIM. R1 TO R6 BY SRI.L.NAGESHWARA RAO, SENIOR ADVOCATE SRI.K.VINOD CHANDRAN,SPL.GP.(TAXES) R7 BY SRI.C.A.SUNDARAM, SENIOR ADVOCATE ADV. SRI.SIJO GEORGE R8 BY ADV.SRI.JOSE JOSEPH. THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 14/10/2010 ALONG WITH W.A.1464/2010 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: THOTTATHIL.B.RADHAKRISHNAN & P.BHAVADASAN, JJ. ------------------------------------------------------------------------ WA Nos.1464, 1470, 1519 and 1769 of 2010 ------------------------------------------------------------------------ Dated this the 14th day of October, 2010 JUDGMENT Thottathil.B.Radhakrishnan, J. C.R. 1.These writ appeals are filed challenging the judgment in WP (C) No.25632/10. The writ petitioner, a proprietary concern by name Megha Distributors, is the appellant in W.A.No.1464/10. We will refer to him hereinafter, as Megha. W.A.No.1470/10 is filed by the seventh respondent in the Writ Petition, the Royal Government of Bhutan, hereinafter, the Bhutan Government. W.A.No.1519/10 is filed by the State of Kerala and its officers, who were among the other respondents in the writ petition. W.A.No.1769/10, which has come up with leave having been granted, is filed by some of the sellers of paper lottery tickets in the State of Kerala. 2.The Bhutan Government entered into an agreement on trade, commerce and transit with the Government of the Republic of WA.1464/10 & con. Cases. 2 India. In WA No.88/07, a Division Bench of this Court held that the treaty between the Government of India and the Bhutan Government, has the status of a law just like any other legislation and the treaty was entered into between the two countries, taking into consideration, the age old ties, with a desire to strengthen it. It was unequivocally held that in terms of the said agreement and the protocol to the agreement, free trade and commerce in terms of that international agreement includes within its scope, sale of Bhutan lottery tickets in India and the sale of Indian Government or State lottery tickets in Bhutan, subject to the relevant laws, which may be in force on the territories of Bhutan and India, as the case may be. This situation, even on facts, is not disputed before us. Therefore, the Bhutan Government is entitled to sell Bhutan lottery tickets in India and such sale will be subject to the laws in force in the territories of India. Hence, the sale of Bhutan lottery tickets within the territory of the State of Kerala would be governed by the Lotteries (Regulation) Act 1998, hereinafter referred to as the 'Central Act', the Rules framed WA.1464/10 & con. Cases. 3 thereunder, namely the Lotteries (Regulation) Rules 2010, hereinafter, the 'Central Rules', the Kerala Tax on Paper Lotteries Act, 2005, for short, the 'Tax Act' and the Rules and Regulations framed thereunder and such other laws that may be applicable to sale of lotteries in the State of Kerala from time to time. This position is also not in dispute. 3. By Ext.P1(a), the competent authority had issued a certificate of registration to the writ petitioner – A.John Kennedy (Megha Distributor) as a promoter under section 7 of the Tax Act, subject to the provisions of the said Act and Rules, including those enumerated in Ext.P1(a) certificate, which is dated 07.07.2005 to be valid until cancelled. Ext.P1 application, on the basis of which Ext.P1(a) certificate was issued, shows that the certification was sought for as promoter-distributor of the Sikkim and Bhutan lotteries. 4.The writ petition was filed in the wake of the refusal of the appropriate authority under the Tax Act to collect the levy WA.1464/10 & con. Cases. 4 payable by Megha, as the promoter of Bhutan Government. Megha, therefore, sought the issuance of a writ of mandamus on the premise that by refusing to accept the levy payable under the Tax Act, the authorities are unlawfully preventing the right of the Bhutan Government, in terms of the International treaty and of Megha, as its promoter, to bring Bhutan lottery tickets into the territory of the State of Kerala and get involved in the trade of Bhutan Government lottery tickets in accordance with the International Treaty and the laws applicable in India, namely, the Central Act and the Rules and Regulations framed thereunder. The writ petitioner stands to assert that it is the promoter certified as per Ext.P1(a) and therefore, there is a legal obligation cast on the statutory authorities to receive payments in terms of the Tax Act. 5.We make reference in this judgment only to the case of Megha as regards Bhutan Government lottery because the issue relating to the sale of lottery tickets of the State of Sikkim no more survives since such claim is given up as of now before us WA.1464/10 & con. Cases. 5 and the thrust of the appeals filed by Megha and the Bhutan Government were only in relation to their claims, relatable to lotteries of Bhutan Government. 6.The State of Kerala and the authorities under the Tax Act took the stand before the learned Single Judge that they have materials with them to show that there are violations of the provisions of the Central Act and the Rules, in relation to different aspects. They also projected a case that they had information and materials to show that the Bhutan Government has given exclusive rights to yet another person, namely Monica Enterprises and therefore, the petitioner Megha cannot continue to profess to be the agent or promoter of Bhutan Government and claim entitlement to pay tax and sell Bhutan lottery tickets on behalf of the Bhutan Government in the State of Kerala. Hereinafter, we would call the said third person – Monica Enterprises, who is not a party to this proceedings, as Monica. WA.1464/10 & con. Cases. 6 7.An officer of the Bhutan Government had filed a counter affidavit before the learned single Judge, supporting the stand of Megha. 8.The learned single Judge found that on the basis of the law governing the field, including the pronouncements of the Honorable Supreme Court of India in Maganbhai Ishwarbhai v. Union of India (1970(3) SCC 400) and B.R.Enterprises v. State of Uttar Pradesh (1999(9) SCC 700) as also the provisions of the Central Act and Central Rules, the Government of the State of Kerala and the authorities under the Tax Act did not have any authority to probe into the alleged violations of the provisions of the Central Act and the Central Rules and there was no reason, even on facts, to refuse to treat the writ petitioner - Megha as the promoter of Bhutan Government in view of Ext.P1(a) certificate and on the stand taken by the Bhutan Government. Accordingly, the learned single Judge held that the authorities under the Tax Act are WA.1464/10 & con. Cases. 7 bound to receive payment of the levy due under that Act from Megha. 9.However, the impugned judgment further proceeds to suggest that there is an apparent conflict between certain provisions of the Central Act and the Central Rules regarding the total number of draws. Taking into consideration, the social scenario and the evil impacts including the addictive tendency of paper lotteries, the learned Judge proceeded to consider as to how many draws could there be for a State conducting lotteries in terms of the Central Act and held that a State can conduct only one draw per week. It was noticed that an objective and purposive construction of the Central Act in the backdrop of its social setting has necessarily to overdrive in a contrary prescription in the Central Rules. Thus, it was concluded that the Bhutan Government lottery could have only one draw per week, all schemes put together. Accordingly, while directing the authorities under the Tax Act, to receive levy as payable by Megha, in terms of that Act, it was directed WA.1464/10 & con. Cases. 8 that Megha could pay tax on behalf of the Bhutan Government, as its promoter, only for such number of draws benchmarked as one draw per week in the case of ordinary lotteries and six draws for bumper lotteries. In support of that view, the learned Judge also made reference to expression by the Division Bench of this Court in the Judgment in WA No.2011/05 and connected cases to the effect that “State can run only 52 ordinary lotteries and six bumper lotteries in a year.” We may immediately mention that there is controversy as to whether the said expression in W.A.No.2011/05 is part of the ratio decidendi, or it is an obiter, or a passing observation, and also whether judicial discipline obliges us to follow it, unless of course, we are unable to reconcile ourselves with that statement. 10.It is in the aforesaid context that the Bhutan Government has filed its Writ Appeal, essentially supporting the plea of Megha in its appeal, that the learned single Judge was not within authority to have adjudicated on the vires of the Central Rules WA.1464/10 & con. Cases. 9 and at any rate, the interpretation of the Central Act and the Central Rules by the learned single Judge, is wrong. 11.The State Government and its officers, who are authorities under the Tax Act, appeal against the finding in the impugned judgment that Megha is entitled to pay the levies due to the State from the Bhutan Government and be the promoter of the Bhutan Government, on the strength of Ext.P1 certification and the consequential direction based on such finding. The appeal by some of the sellers of paper lottery tickets, is on the premise that the interpretation given in the impugned judgment to the Central Act and Central Rules, essentially curbing the total number of draws and the bumper draws, goes a long way in adversely affecting the socially and economically challenged sector of the society. It is pointed out that at least to a good extent, it is those below the poverty line or belonging to otherwise challenged and marginalised sectors, who ultimately sell the paper lottery tickets. Further, it is also suggested that physically handicapped and similar people also WA.1464/10 & con. Cases. 10 generate some income for their sustenance, by selling lottery tickets. 12.We heard Senior Advocates C.A.Sundaram and P.S.Raman, assisted by Adv.Sijo George, on behalf of Megha; Senior Advocates Abhishek Manu Singhvi and Rajiv Nayyar, assisted by Adv.Harisankar.V.Menon, on behalf of the Bhutan Government and the Senior Advocate L.Nageswara Rao and Adv.Vinod Chandran, the learned Special Government Pleader for Taxes for the State of Kerala. We heard Adv.P.V.Surendranath on behalf of the lottery ticket sellers. 13.On the basis of the arguments advanced, the issues arising for decision get classified into two : (A) Was the learned single Judge justified in holding that the authorities under the Tax Act are obliged to collect levy under that Act to be paid by Megha on behalf of the Bhutan Government ? WA.1464/10 & con. Cases. 11 (B) Is the interpretation given in the impugned judgment regarding the provisions of the Central Act and the Central Rules, thereby holding that there can be only 52 draws and six bumper draws in an year, sustainable in law ? We proceed to decide the aforesaid issues separately. 14. In re Issue (A) : As of now, this issue stands answered by the learned single Judge in favour of Megha. Therefore, we will first consider the arguments advanced on behalf of the State of Kerala and its officers against such finding and direction. It was contended on behalf of the State that what actually happened before the learned single Judge was that there was essentially lack of opportunity to place the relevant materials including the pleadings and the Division Bench during the course of proceedings, had extended freedom to the State Government to make such enquiry as it may deem necessary and place report before this Court. The authorities under the Tax Act had produced two reports of facts that have come to WA.1464/10 & con. Cases. 12 them during the course of the enquiry and on the basis of such materials, further enquiry was required. It is pointed out that one crucial fact that has surfaced in the enquiry by the officers of the State of Kerala is that the Bhutan Government has given the exclusive purchasing rights in relation to its lottery tickets for sale in India, to Monica, which, in turn, has given the vending rights to different distributors. However, there is nothing to show that Monica has given any authorisation to Megha to be the promoter or agent for vending Bhutan lottery tickets in the State of Kerala. In that premise, it is contended that the Bhutan Government, after having parted to Monica, the sole right to purchase the tickets, cannot be heard to contend that it has appointed Megha to continue as its promoter. Dilating on the jurisdictional aspects, it was argued that there is fair room within the provisions of the Tax Act to enable the competent authorities to ensure that the amounts due as levy under the Tax Act are paid only by such person, who is the real promoter of the Bhutan Government. WA.1464/10 & con. Cases. 13 15.On behalf of the Bhutan Government, it was argued that following the earlier interim orders in the writ appeal, the Director of Lotteries of the Bhutan Government had filed a further specific additional affidavit in the writ appeal, asserting the stand of the Bhutan Government that Megha is its promoter for the State of Kerala and that on the face of the provisions of the treaty between the Bhutan Government and the Government of India and in the light of the provisions of the Central Act and Central Rules, as interpreted by the Central Government, there is no room for the State to make any enquiry whatsoever, touching any matter that would fall within the purview of the Central Act and all that the State Government could ensure is that the promoter who has been issued the certificate, continues to be the promoter, which fact, according to the Bhutan Government, is beyond challenge in the light of the additional affidavit that has been placed before the Court in this case. WA.1464/10 & con. Cases. 14 16.On behalf of Megha, it was argued that there was no jurisdictional fact on the basis of which the authorities under the Tax Act could make any enquiry and say that the whole exercise is a fishing or rowing exercise motivated by considerations extraneous to the field governed by the Tax Act. It is pointed out that the nature of objections raised by the State Government and its officers is one, which commends upon the contractual obligations between the Bhutan Government, Monica, other intermediaries and Megha; which obligations cannot be subjected to any scrutiny by the officers under the Tax Act. 17.On the basis of the aforesaid submissions, it emerges without doubt that the writ petitioner Megha was appointed by the Bhutan Government as its promoter and on the strength of such appointment, Megha was given Ext.P1(a) certificate in 2005 by the competent authority under the Tax Act. Section 7 of the Tax Act provides for registration of promoters. Every promoter, selling lottery tickets, shall get himself registered WA.1464/10 & con. Cases. 15 under the Tax Act, following the prescriptions under that Act. The renewal of registration is from year to year, on payment of prescribed fee and security, until the registration is cancelled. These provisions categorically show that once registration is granted, it continues to be in force, unless it is cancelled. 18.Section 2(a) of the Tax Act defines “agent” as one who has entered into an agency agreement for the sale of lottery tickets in the State of Kerala and includes registered agents, appointed to sell lottery tickets in the State. The agency agreement is to be entered into with the State of Central Government or any Union Territory or any country, which has a bilateral agreement or treaty with the Government of India for the sale of lottery tickets in the State. In distinction to that provision, the term 'promoter' is defined in Section 2(l) of the Tax Act to mean the Government of India, the Government of a State or Union Territory or any country which has a bilateral agreement or treaty with the Government of India for organising, conducting or promoting a lottery and includes any WA.1464/10 & con. Cases. 16 person appointed for selling lottery tickets by the Government in the State of Kerala on its behalf where such Government is not directly selling lottery tickets in the Sate. Therefore, when the Government of India or the Government of a State or the Union Territory or any eligible country under a bilateral agreement does not sell its lottery tickets directly in the Sate of Kerala, it is authorised to appoint any person to sell lottery tickets and a person so appointed, is a “promoter” for the purpose of S.2(l) of the Tax Act. This is in contra distinction to the concept of “agent” in S.2(a), where an agreement in the form of an agency agreement or otherwise is required. This clear dichotomy in the statutory expressions used by the Legislature in Section 2(a) and Section 2(l) of the Tax Act is sufficient to hold that when the Bhutan Government stands to assert in the form of an affidavit that Megha is its promoter, there is no reason for the authorities under the Tax Act to take a contradicting stand or to assume any jurisdictional fact to initiate any proceedings on such premise or to refuse to receive tax from Megha as the promoter of Bhutan WA.1464/10 & con. Cases. 17 Government. In this view of the matter, we have no hesitation to hold that the authorities under the Tax Act cannot insist on the scrutiny of any agreement, which may or may not be there, between the Bhutan Government and any person appointed by it as its promoter, when the Bhutan Government itself, stands to say that it has appointed Megha as its promoter. 19.We have perused the enquiry reports also. The reports tend to suggest that the State of Kerala and its officers are of the view that the Bhutan Government has a sole purchaser agreement with Monica for the whole of India and that Monica is given the power to decide the sellers and therefore, the Bhutan Government cannot recognise Megha as its promoter without a specific agreement between Monica and Megha, in that regard. The report itself suggests the existence of different other buying and selling entities in between. Therefore, even if we were to look at the whole issue from the angle of the interest of the State of Kerala, what has to be ensured is that it is the Bhutan Government which wants to do WA.1464/10 & con. Cases. 18 commercial activities in lotteries in the State of Kerala on the strength of the bilateral treaty with the Government of India, that has to be ultimately made answerable for payment of any tax or levy due in terms of the Tax Act . When the Bhutan Government stands to say that such obligation will be discharged through Megha, it does not lie in the mouth of the State Government or its officers including the authorities under the Tax Act to say that they would not receive tax from Megha, on behalf of the Bhutan Government. The levy and collection of tax on paper lotteries is a statutory obligation in terms of S.6 of the Tax Act. When the Bhutan Government points out Megha as its promoter, there is no reason, why the State Government and the authorities under the Tax Act shall not act on it. 20.During the course of arguments, it was also pointed out that on 17.09.2010, the Principal Secretary to Government of Kerala, Taxes (H) Department, had issued a letter to the Joint Secretary in the Ministry of External Affairs, Government of WA.1464/10 & con. Cases. 19 India, New Delhi, raising certain queries in relation to the lotteries of Bhutan Government and that the Director in the Ministry of Home Affairs had addressed the Principal Secretary Taxes (H) Department of the Government of Kerala on 29.09.2010, providing certain information. Such materials are absolutely necessary for a complete decision on this particular issue. Therefore, the Bench also wanted to see such materials, which were not until then, placed before this Court. Those letters have been placed on record along with a memo dated 11.10.2010, filed on behalf of the State of Kerala with CF No.5291/10. We have perused those letters. We admit them as evidence and mark them as Exhibits A1 and A2 respectively in WA No.1519/10 (the appeal filed by the State of Kerala and others). In Ext.A2 letter, the Ministry of Home Affairs in the Government of India has informed the Principal Secretary, Taxes Department that Megha is a sole proprietary concern and it is the authorised promoter for the sale of lottery tickets of Bhutan Government in the State of Kerala. It further states that the Bhutan Government has signed an agreement WA.1464/10 & con. Cases. 20 with Monica and the Bhutan Government stands by the earlier factual situation that Megha is its authorised promoter for the State of Kerala since 2005 and that the Bhutan Government has not sent any communication to the State Government, stating that Megha is no longer the authorised promoter of Bhutan Government in the State of Kerala. Rule 3(1) of the Tax Rules provides that every person registered as a promoter and who discontinues or transfers his activities relating to lotteries or where the registration certificate is cancelled, shall forthwith surrender the certificate of registration. In the light of the specific stand taken by the Bhutan Government in its affidavit before us that it continues to retain Megha as its promoter and in the light of the information furnished by the Central Government to the State Government in that regard, we do not find any room for any further probe in the matter. In this context, the judgment of the Apex Court in Civil Appeal Nos.6700-6701/08 relied on by Megha and the Bhutan Government is also relevant since it supports the reliance that we place on the affidavit of the Bhutan Government. WA.1464/10 & con. Cases. 21 21.Now, even if Monica is appointed as the sole purchasing agent of Bhutan lotteries for the whole of India and if Monica were to appoint an agent for the State of Kerala, whom would the State Government recognise as the promoter of the lotteries of Bhutan Government ? There has to be appropriate appointment or ratification by Bhutan Government, recognising the agent of Monica as the promoter of lotteries of the Bhutan Government. Without that, the State Government would not recognise any such agent of Monica as the “promoter” of Bhutan Government's lotteries, having defined in the definition of “promoter” in the Tax Act and the Central Act. On the face of the provisions of the Treaty that Bhutan Government has with the Government of India and in the light of the definition of promoter as contained in S.2(l) of the Tax Act, a promoter