IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMACHANDRA MENON MONDAY, THE 30TH AUGUST 2010 / 8TH BHADRA 1932 WP(C).No. 25632 of 2010(D) -------------------------- PETITIONER: --------------- A.JOHN KENNEDY,PROPRIETOR,MEGHA DISTRIBUTOR,OFFICE AT 15/650,KUNNATHUR MEDU, COIMBATORE MAIN ROAD, PALAKKAD. BY ADV. MR. ALTAF AHAMED, SENIOR ADVOCATE (APPEARED) MR. ANIL KHER, SENIOR ADVOCATE MR. A.M.SHAFFIQUE, SENIOR ADVOCATE MR. SIJO GEORGE \ RESPONDENTS: --------------- 1. STATE OF KERALA, REPRESENTED BY ITS CHIEF SECRETARY, GOVT. OF KERALA,GOVERNMENT SECRETARIAT,THIRUVANANTHAPURAM. 2. SECRETARY , TAXES (H) DEPARTMENT, GOVT.OF KEALA, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM. 3. COMMISSIONER OF COMMERCIAL TAXES, COMMERCIAL TAXES DEPARTMENT, GOVERNMENT SECRETARIAT,THIRUVANANTHAPURAM. 4. THE DIRECTOR , KERALA STATE LOTTERIES, GOVT.OF KERALA,THIRUVANANTHAPURAM. 5. THE DEPUTY COMMISSIONER,COMMERCIAL TAXES DEPARTMENT, PALAKKAD. 6. THE ASSISTANT COMMISSIONER(ASSESSMENT) COMMERCIAL TAXES, SPECIAL CIRCLE, PALAKKAD. 7. ROYAL GOVERNMENT OF BHUTAN,MINISTRY OF FINANCE, DIRECTORATE OF LOTTERIES, PHUENTSHOLING, BHUTAN, REPRESENTED BY ITS DEPUTY SECRETARY. 8. STATE OF SIKKIM, DIRECTOR OF SIKKIM STATE LOTTERIES, GANGTOK,SIKKIM. R1 TO R6 ADV. MR. L. NAGESWARA RAO, SENIOR ADVOCATE (APPEARED) MR. P.V. DINESH, (APPEARED) MR. SANTHOSH KRISHNAN (APPEARED) MR. HARIKUMAR G. (APPEARED) BY SPECIAL GOVERNMENT PLEADER FOR TAXES MR. K. VINOD CHANDRAN R7 BY ADV. MR. HARISANKER V. MENON ADV. MR. RAJESH NAYYAR (APPEARED) R8 BY MR. JOSE JOSEPH MR. NEERAJ KRISHNAN KOWL, SENIOR ADVOCATE THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ORDERS ON 30/08/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: (C.R.) P.R. RAMACHANDRA MENON, J. .............................................................................. W.P.(C)No. 25632 OF 2010 ......................................................................... Dated this the 30th August , 2010 J U D G M E N T 'The King does no wrong' is the age-old adage. But the 'State' can be an exception, at least in the case of running Lotteries, as it appears from the provisions contained in the Lotteries (Regulation)Act, 1998. 2. To curb the menace of Lottery Trade in the country, the malpractices thereof and the impact of certain types of Lotteries on poorer sections of the Society, the Parliament enacted the Lotteries (Regulation) Act 1998 (Act 17 of 1998). By virtue of Section 3 , it is stipulated that no State Government shall organise, conduct or promote any Lottery, save as otherwise provided in Section 4, specifying the conditions. Section 5 enables a State Government to prohibit the sale of tickets of a Lottery organised, conducted or promoted by every W.P.(C)No. 25632 OF 2010 2 other State. As per Section 6, the Central Government is empowered to prohibit any Lottery organised, conducted or promoted in contravention of the provisions of Section 4 or where tickets of such Lottery are sold in contravention of the provisions of Section 5. The penalty provision, particularly sub section (1) of Section 7, is in respect of the penalty to be imposed on violation of the provisions of the Act, upon the Head of the Department, if the violation is by any Department of the State Government and sub section (2) enables to proceed against such other officer of the Department as well, if he is also involved, to the extent as specified therein. When sub sections (1) and (2) deal with proceedings against the 'officers of the Government' as aforesaid, sub section (3) provides for proceeding against 'any person' who acts as an agent or promoter or trader in any Lottery organised, conducted or promoted in contravention of the provisions of the Act or sells, distributes or purchases the tickets of such Lottery. Section 8 makes it clear that the offences under the Act shall be 'cognizable' and 'non bailable' and Section 9 deals with the W.P.(C)No. 25632 OF 2010 3 offences by Companies. Thus, going by the scheme of the Statute, it is very obvious that it was enacted by the Government of India, mainly 'to protect the poor people of the country' who get attracted to the tempting torch lit by the organisers/conductors/promoters of the Lottery and burn their lives, besides ruining their families and 'not as a measure for augmentation of the revenue' of the State. The issue involved in the present case, as to the relative rights and liabilities to pay/accept the tax under the Kerala Tax on Paper Lotteries Act, 2005 has to be examined in this broad spectrum. 3. Coming to the case in hand, the 'Interim relief' prayed for, under prayer 'A” is as follows: “Directing the Respondent No.6 to accept the advance tax from the petitioner in relation to the Royal Government of Bhutan and the State Government of Sikkim lotteries under the Kerala Paper Lotteries Tax Act, 2005 from month to month during the pendency of the present writ petition;” W.P.(C)No. 25632 OF 2010 4 This by itself appears almost to be the 'Main relief' sought for as prayer 'A' in the Writ Petition, which is extracted below: “Issue a Writ of Mandamus or any other appropriate writ order or direction directing the Respondent No.6 to accept the advance tax from the petitioner in relation to the Royal Government of Bhutan lotteries under the Kerala Paper Lotteries Tax Act, 2005.” When the matter came up for admission before this Court on 18.08.2010, the primary question which struck the mind of this Court was, whether this Court would be justified in granting any interim relief (if eligible), which substantially is the main relief. The legal position stands already answered by the Honourable Supreme Court as per the decision reported in Bank of Maharashtra vs. Race Shipping & Transport Company Pvt. Ltd and another (JT 1995 (3) SC. 175) holding that no 'main relief' can be granted in the form of ' interim relief'. This required the matter to be heard in detail and accordingly, the Writ Petition was heard on the said date, as both the sides were represented, including the 7th respondent/the Royal Government W.P.(C)No. 25632 OF 2010 5 of Bhutan and the State of Sikkim/the 8th respondent, though the Writ Petition was yet to be admitted and notice was still to be ordered to the said respondents. 4. Mr. Altaf Ahammed, the learmed Senior Counsel addressed the arguments on behalf of the petitioner, which was supported by Mr.Rajeev Nayyar, the learned Sr. Advocate, who addressed the arguments on behalf of the Royal Government of Bhutan, (the 7th respondent) and Mr. Neeraj Kishan Kaul, the learned Senior Counsel led the arguments on behalf of the State of Sikkim, (the 8th respondent); while the arguments on behalf of the first respondent/State of Kerala and the authorities under the State were anchored by the learned Sr. Counsel Mr. Nageswara Rao. 5. The basic issue projected in the Writ Petition is whether the State is justified in refusing to accept the advance tax under Section 10 of the Kerala Tax on Paper Lotteries Act, 2005 and whether the same would result in interfering, prohibiting or stopping the entry or sale of the Lottery tickets of the Royal Government of Bhutan and the State of Sikkim. W.P.(C)No. 25632 OF 2010 6 6. The learned Senior Counsel appearing for the petitioner submitted that the cause of action is in respect of the period from 01.09.2010 and that the relief now pressed for, is in respect of the Lotteries launched by the 7th respondent/Royal Government of Bhutan. In respect of Lotteries launched by the 8th respondent/State of Sikkim, it was stated that they were no more to be in operation from 01.09.2010, because of temporary stoppage of the scheme as ordered by the Sikkim Government; simultaneously adding that the petitioner is entitled to have similar reliefs in respect of Lotteries of the said respondent as well, when they are launched in due course. Referring to the scheme of the 'Central Act', (Lotteries (Regulation) Act 1998) and the provisions of the 'State Act' (Kerala Tax on Paper Lotteries Act, 2005) and also with reference to the various binding judicial precedents, learned Senior Counsel submitted that the petitioner is constrained to approach this Court, in spite of several rounds of litigations involving similar/incidental cause of action and favourable orders/verdicts, W.P.(C)No. 25632 OF 2010 7 only because of the conscious attempt and course being pursued by the State Government, who denied the entry and sale of Lotteries launched by the 7th and 8th respondents through the petitioner, who is stated as the 'Promoter' and who has been pursuing the said business for quite long, having been appointed as the Promoter to conduct the said business in the State of Kerala and has been remitting tax payable to the State without fail. It was pointed out that by virtue of his being the Promoter as defined under Section 2(l) of the State Act and by virtue of the liability to pay tax as provided under Section 6 of the State Act, the petitioner has got registered as a 'Promoter' under Section 7, as borne by Ext. P1(a) Certificate of Registration, which has been renewed and valid till the next year as evident from Ext.P2 Certificate issued by the 6th respondent. By virtue of the mandate under Section 10, the petitioner is supposed to effect tax in advance, on the first of every month (if holiday, on the next working day) along with a statement containing such particulars as prescribed, relating to the 'draws' to be conducted during the month commencing from the next succeeding month W.P.(C)No. 25632 OF 2010 8 and if there is any default or delay in paying the tax in advance, interest is liable to be paid at the rate of 2% per month from the date of default or short payment, to the date of payment of such tax. Referring to Ext.P7 series receipts/forwarding letters, it is stated that the petitioner has been remitting the tax and interest as specified and has been filing the returns under Section 8. 7. Notwithstanding the payment of tax being effected by the petitioner, the 6th respondent had refused to accept the tax from the petitioner for some reasons and issued a show- cause notice under Section 10(4) earlier, proposing to cancel the registration, which made him to approach this Court by filing W.P.(C) 30355 of 2006 (when the petitioner was engaged in the trade of Lotteries launched by 8th respondent/State of Sikkim). Similar Writ Petition was filed by another petitioner who was the Promoter and was dealing with the Lotteries launched by the 7th respondent/Royal Government of Bhutan, (who was also confronted with similar show-cause notice), by filing W.P.(C) 30176 of 2006. The reason stated in the show-cause notice for W.P.(C)No. 25632 OF 2010 9 cancellation of the registration was that the Lottery was 'being run in violation of the conditions stipulated under Section 4 of the Central Act' . After analysing the facts and figures , it was held in paragraph No. 23 of the common verdict (Ext.P15) passed by the learned single Judge of this Court, that the action on the part of the Government in seeking to cancel the registration for violation of the conditions of Section 4 of the 'Central Act' was without jurisdiction, as it would virtually amount to prohibition of the sale of the Lottery contemplated under Section 5 of the Central Act, for which the State Government was having no power; the same being vested with the Central Government. The action, which the State cannot do under Section 5 of the Central Act directly, cannot be done indirectly, referring to the State Act; more so, when the State of Kerala has no power to regulate or prohibit Lottery, unless it is a Lottery Free Zone.; was the crux of the finding. Accordingly, the tax offered by the petitioner in respect of the 'Sikkim Lottery' was directed to be received, though some other adverse observations were made in the next paragraph, holding that the State Government of W.P.(C)No. 25632 OF 2010 10 Sikkim was running the Lottery with admitted violation of Section 4 of the Central Act and in turn, directing the Central Government, (who was 'suo motu' impleaded as the additional 8th respondent as per the order dated 05.01.2007), to look into the complaints as to the violations, in accordance with law, within four months. 8. With regard to the cause of action projected in the connected case, i.e., W.P.(C) 30176 of 2006 pertaining to the sale of Lottery of the Royal Government of Bhutan, it was held that the position stood on a different footing; Bhutan being a foreign country. After detailed discussion, it was held that, if the State of Kerala was satisfied that the Lottery was being run in violation of the provisions of Section 4 of the Central Act, Lottery of the said Government (Royal Government of Bhutan ) could be prohibited by the State and accordingly W.P.(C)No. 30176 of 2006 was dismissed, repelling the challenge raised against the show-cause notice issued under Section 10(4) of the State Act, vide Ext. P15 judgment. W.P.(C)No. 25632 OF 2010 11 9. The above verdict passed by the learned single Judge was subjected to challenge by the aggrieved party (Promoter of the Bhutan Lotteries) by filing W.A.No.88 of 2007, which culminated in Ext. P16 verdict rendered by the Division Bench of this Court. After meticulous analysis of the relevant provisions of law, it was held by the Division Bench, that the finding of the learned single Judge, treating the Lotteries launched by the Royal Government of Bhutan on a different pedestal and dismissing the Writ Petition, was quite wrong and misconceived. It was observed that, so long as the State of Kerala was not a Lottery-Free State, the sale of Lottery tickets of Royal Government of Bhutan and the State of Sikkim stood on the same footing, in view of the 'treaty' executed between the Government of Bhutan and the Government of India; more so in view of the mandate under Article 253 of the Constitution of India, the scope of which has been highlighted by the Apex Court in Maganbhai Ishwarbhai v. Union of India (1970 (3) SCC 400). It was held that, in case of any violation of the 'treaty' or 'agreement' or section 4 of the Central Act , it was for W.P.(C)No. 25632 OF 2010 12 the Government of India to take action and not for the officers functioning under the State Act. Accordingly, the Writ Appeal was allowed, quashing the impugned show cause-notice and the respondents were directed to receive the tax from the petitioner in W.P.(C)No.30176 of 2006. 10. The petitioner herein, was later appointed as the 'Promoter' in respect of the Lotteries launched by the Royal Government of Bhutan and when the 6th respondent refused to accept the advance tax under the Kerala Act from the petitioner, he was constrained to approach this Court by filing W.P.(C) 36645 of 2007. The main contention raised from the part of the respondent/State was that the petitioner did not satisfy the definition of the term 'Promoter ' as defined under Section 2(l) of the State Act as he was never appointed 'by the Government of Bhutan', but by M/s. Martin Lottery Agencies ( Pvt.) Ltd, who was the actual Promoter, who however was not authorised to appoint anybody as the Promoter. Referring to the various provisions and the judicial precedents , it was held by a learned single Judge of this Court, that it was not a matter to be W.P.(C)No. 25632 OF 2010 13 attended by the officers of the State of Kerala, when the 7th respondent has already addressed them on several occasions confirming the appointment of the petitioner as Promoter and also as submitted before this Court in this regard. Accordingly, the Writ Petition was allowed as per Ext. P4 judgment passed on 25.02.2008 and the 6th respondent was directed to accept the advance tax under the Kerala Tax on Paper Lotteries Act, 2005 from the petitioner in relation to the Lotteries of the 7th respondent. Though the said verdict has been subjected to challenge in appeal, no interim stay has been granted and as such, the contention of the petitioner is that, by virtue of the verdicts, as above, the 6th respondent is bound to accept the tax from the petitioner and there cannot be any refusal at all. 11. However, quite contrary to this , the 6th respondent, on the basis of some alleged complaints/press reports refused to accept the advance tax from the petitioner for the month commencing from 01.09.2010, which made the petitioner to send Ext.P14 letter along with a Crossed Pay Order dated W.P.(C)No. 25632 OF 2010 14 02.08.2010 for the sum of Rs.6,30,00,000/- by registered post, requesting to issue the certificate of payment of tax, which was returned as 'refused to accept'. This made the petitioner to approach this Court, by filing the present Writ Petition, seeking for immediate intervention and to grant the reliefs as prayed for. 12. The learned Senior Counsel for the petitioner submits that, there is absolutely no rhyme or reason for not accepting the advance tax from the petitioner, that too, on the basis of some frivolous complaints or allegations that the petitioner is not the 'Promoter' appointed by the 7th and 8th respondents. The conditions contemplated under sub sections (2) and (3) of Section 10 are stated as not attracted, to mulct any 'default liability' upon the petitioner, as there is no default, when the petitioner has tendered the amount of 'advance tax' along with the statement, which however has not been accepted by the 6th respondent and the postal cover, sent by the registered post, containing the contents as above has been caused to be returned 'as refused'. Because of the course pursued by the 6th respondent, presumably at the instance of the higher authorities W.P.(C)No. 25632 OF 2010 15 of the State, the petitioner has been virtually prevented from bringing or pursuing the sale of the Lottery tickets of the respondents 7 and 8, which in fact amounts to 'prohibition of the Lotteries' in an indirect manner. Because of the non acceptance of the tax and non issuance of the certificate of payment (which is to be accompanied with every transport of the Lottery tickets), the petitioner is made to face adverse consequences for 'fraudulent transport of Lottery tickets' under Section 30 of the Kerala Act and such other measures, if he pursued any further business. The learned Senior Counsel further submitted that, since the position has been clarified by the concerned Governments i.e. respondents 7 and 8, as to the status of the petitioner as a 'Promoter' duly recognized by the 7th and 8th respondents, it is no more open to be doubted by the respondents 1 to 6 and there is no rationale to prevent the running of Lotteries by other States, trying to promote solely the Lottery run by the State of Kerala, in an indirect manner. W.P.(C)No. 25632 OF 2010 16 13. Mr. Nageswara Rao, the learned Senior Counsel appearing for the first respondent State of Kerala submitted that the non-acceptance of tax by the 6th respondent was never because of any unlawful design as alleged, but because of genuine reasons as to the necessity for conducting an 'enquiry' as to the status of the petitioner; particularly in view of the complaints received including those on 12.8.2010 and 13.8.2010, copies of which have been produced and marked as Annexures- 'B' and 'C' respectively. Going by the contents of the complaints and also the agreement stated as executed between the 7th respondent/Royal Government of Bhutan and the other signatory i.e. 'M/s Monica Distributors Private Limited', the latter having been appointed as the 'new Promoter', the earlier Promoter M/s Martin Lottery Agencies (Pvt) Limited' did no more continue to be the Promoter of the 7th respondent and as a natural consequence, the petitioner who was appointed by M/s Martin Lottery Agencies (Pvt) Limited did not have any 'locus standi' to be claimed as the 'Promoter' of the 7th respondent and to pay the advance tax. Reference was also made to the relevant W.P.(C)No. 25632 OF 2010 17 provisions of law, particularly Section 2 (i), 2 (j) and 2 (l) of the State Act, defining the terms 'Lottery', 'Paper lottery' and 'Promoter' respectively. The charging provisions under Section 6, particularly sub sections (2) and (3) and also sub section (1) of Section 10, have been referred to, asserting that, tax has to be paid by none other than the 'Promoter', and if more than one 'Promoter' has been appointed, it shall be effected only by the 'Authorised Promoter'. In view of the Annexures B and C complaints and the alleged agreement dated 17.3.2010 executed between the Royal Government of Bhutan and M/s Monica Distributors Private Limited, the newly appointed Promoter, as alleged, the matter required to be enquired before acceptance of the tax and stated that, such enquiry would be completed within two weeks. The learned Senior Counsel also submitted that, the power of the State Government to conduct such enquiry is not forbidden, merely because of some letters issued by the respondents 7 and 8 as to the recognition given to the petitioner as a 'Promoter'. It was also stated that Ext. P16 judgment passed by the Division Bench of this Court has not become final W.P.(C)No. 25632 OF 2010 18 and that same is pending consideration before the Apex Court, having been tagged with the other cases, connected/incidental to the issue. 14. Mr. Rajeev Nayyar, the learned Senior Counsel who addressed the Court on behalf of the 7th respondent/the Royal Government of Bhutan, besides supporting the case of the petitioner, submitted with reference to Exts. R7 (a) to R7 (d) produced along with I.A. 11730 of 2010, that the first respondent/the State of Kerala, as per Ext. R7 (c) letter dated 04.08.2010 had requested the Government of India to ascertain and confirm the status of M/s Megha Distributor (proprietary concern of the petitioner) as the 'Promoter' of the Bhutan Government Lotteries (as intimated by the latter). Similarly, the position with respect to the lotteries launched by the 8th respondent/State of Sikkim was also sought to be clarified, vide Ext. R7(c). On receipt of the said letter, the matter was immediately taken up by the Central Government with the 7th respondent, as per letter dated 09.08.2010 and the position was confirmed by the Bhutan Government, who conveyed the same W.P.(C)No. 25632 OF 2010 19 by Ext. R7 (b) letter, which in turn was communicated by the Central Government to the first respondent/State of Kerala as per the letter dated 10.08.2010 (Ext.R7(d)), simultaneously confirming the position with regard to the 8th respondent/State of Sikkim as well. 15. Regarding the affairs of the 8th respondent/Government of Sikkim, Mr. Neeraj Kishan Kaul, the learned Senior Counsel submitted with reference to the documents produced as Exts. R8(a) to R8 (e) along with I.A. 11728 of 2010, that the first respondent State of Kerala, vide Ext.R8 (a) letter dated 28.7.2010 had sought for clarification from the Chief Secretary of the Government of Sikkim, as to the genuineness of the 'Promoter' appointed by the latter, for the sale and distribution of Lottery tickets in the State of Kerala. This was replied to, by the State of Sikkim as per Ext. R8 (b) letter dated 30.07.2010 confirming that M/s. Megha Distributor (who was appointed by M/s Future Gaming Solutions India Private Limited, who in fact was appointed by the State of Sikkim W.P.(C)No. 25632 OF 2010 20 for marketing the conventional paper lotteries of the State of Sikkim in the entire territory of India), was recognized by the State of Sikkim as the 'Promoter' under the Kerala Act . Reference was also made to the 'public notice' dated 12.08.2010 issued by the Director of Sikkim State Lotteries clarifying the above position and also the letter dated 12.08.2010 addressed to the person who was holding the office of the 6th respondent, requesting to accept the advance tax from the petitioner; besides referring to Ext. R8 (e) letter dated 10.08.2010 routed through the Government of India, [which is the same as Ext. R7 (d)]. 16. Coming to the scope and applicability of the Central Act/Rules and the State Act/Rules, the former pertains to the 'regulatory measures' with regard to running of the