IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM TUESDAY, THE 26TH OCTOBER 2010 / 4TH KARTHIKA 1932 WP(C).No. 26912 of 2010(L) -------------------------------------- PETITIONER: ------------------- A.JOHN KENNEDY, PROPRIETOR, MEGHA DISTRIBUTOR, OFFICE AT 15/650, KUNNATHUR MEDU, COIMBATORE MAIN ROAD, PALAKKAD. BY SRI.A.M.SHAFFIQUE, SENIOR ADVOCATE, SRI.ANIL KHER, SENIOR ADVOCATE, SRI.ALTHAF AHAMMED, SENIOR ADVOCATE, ADV.SRI.SIJO GEORGE. RESPONDENTS: ------------------------ 1. STATE OF KERALA, REP. BY ITS SECRETARY, MINISTRY OF FINANCE, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM. 2. SECRETARY, TAXES DEPARTMENT, GOVT. OF KERALA, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM. 3. COMMISSIONER OF COMMERCIAL TAXES, COMMERCIAL TAXES DEPARTMENT, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM. 4. DEPUTY COMMISSIONER, DEPARTMENT OF COMMERCIAL TAXES, PALAKKAD. 5. THE ASSISTANT COMMISSIONER (ASSESSMENT), DEPARTMENT OF COMMERCIAL TAXES, SPECIAL CIRCLE, PALAKKAD. W.P.(C). NO.26912/2010-L: 6. COMMERCIAL TAX INSPECTOR, COMMERCIAL TAX CHECK POST, WALAYAR. 7. STATE OF SIKKIM, REP. BY THE DIRECTORATE OF SIKKIM STATE LOTTERIES, BALUWAKHANI, GANKTOK, SIKKIM. R1 TO R6 BY SR. GOVT. PLEADER SRI. JAIDEEP GUPTA, SR. GOVT. PLEADER SRI. VINOD CHANDRAN, GOVT. PLEADER SRI. K.P. PRADEEP, R7 BY ADV. SRI. JOSE JOSEPH. THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 04/10/2010, ALONG WITH W.P.(C). NOS. 28060/2010 & 28081/2010 THE COURT ON 26/10/2010 DELIVERED THE FOLLOWING: prv. C.R. C.K.ABDUL REHIM, J. ------------------------------------------------------------------ W.P.(C).Nos.26912, 28060 & 28081 of 2010 ------------------------------------------------------------------- Dated this the 26th day of October, 2010 J U D G M E N T ---------------------- The common petitioner in all these 3 cases claims to be the authorised promoter in the State of Kerala for lottery organised by the State of Sikkim, coming within the definition of 'promoter' under Section 2(l) of the Kerala Tax on Paper Lotteries Act, 2005 (hereinafter referred as the 'Taxation Act', for short). The cause of action in these cases relates to actions initiated by the 6th respondent pursuant to detention of a consignment of paper lotteries transported to the State of Kerala, in vehicle bearing No:TN-07/AD-5566. 2. WP(C).No.26912/2010 was filed seeking to quash Ext.P10 & P11 notices and Ext.P13 order issued by the 6th respondent, invoking powers under Section 30 (1) & (2) of the Taxation Act. Through Ext.P13 order the 6th respondent took a decision to detain and seize the goods along with the vehicle, to be produced before W.P.(C).26912/10 & con. cases -2- the 5th respondent for proceeding with further steps under Section 30(1) & (2). 3. On the basis of Ext.P13 order in WP(C). 26912/2010, proposal notices were issued by the 5th respondent for imposition of penalty under Section 27(1) and 30(1) of the Taxation Act. Challenge in WP(C). No.28060/2010 is against Ext.P18 therein, notice proposing penalty under Section 27(1). Challenge in WP(C). 28081/2010 is against Ext.P16 therein, notice proposing penalty under Section 30(1). The 5th respondent was restrained by this court through an interim order, from passing final orders based on such notices, and no order of penalty was issued till date. 4. A brief history of the case is narrated hereunder, referring to exhibits marked in WP(C).26912/2010. On interception of the transport the 6th respondent issued Ext.P10 notice alleging that, on verification of documents accompanying the transport, certain discrepancies were noticed regarding change in the scheme from 19.8.2010 onwards, with respect to 'Draw No:232' of “Sikkim Super Deluxe” and “Sikkim Super Classic” lotteries, resulting in W.P.(C).26912/10 & con. cases -3- doubling of the prize to Rs.50 lakhs and increase in the price of lotteries to Rs.20/-. As Advance Tax was remitted without considering such change, a willful plan to evade payment of tax and fraudulent movement of lottery tickets was suspected. Hence, the person in charge of the vehicle was requested to make necessary arrangements for physical verification, in order to quantify the number of tickets transported. 5. After conducting physical verification, Ext.P11 notice was served on the petitioner and on the driver of the vehicle. In Ext.P11 it is alleged that the petitioner has not produced certificate obtained from the Assistant Commissioner to prove payment of the Advance Tax with respect to the newly launched scheme and the details regarding the scheme was not informed to the Assistant Commissioner, enabling verification regarding correctness of the tickets transported. It is further alleged that the Advance Tax already remitted is for the old scheme which was discontinued with effect from 18.8.2010, and the said payment could not be considered as remittance for the newly introduced draws. Yet another allegation is that, on W.P.(C).26912/10 & con. cases -4- verification of the lottery tickets it was revealed that the draws will be conducted on 30.8.2010 and on 31.8.2010, which is 'Onam' and 'Ramzan' festival seasons in Kerala, and therefore the draws are to be treated as 'Bumper draws', as defined under Section 2(c) of the Taxation Act, which will attract payment of Advance Tax at the rate of Rs.17 lakhs per draw, and that remittance of such amount was not made. It is alleged that the transport was without proof regarding payment of tax and therefore liable for detention under Section 30(1). The petitioner was requested to file objections if any against the proposal for seizure of the goods and the vehicle, to be produced before the 5th respondent under Section 30(1) & (2) of the Taxation Act. The objections in this regard was requested to be filed within 3 hours and an opportunity of hearing was afforded within that time. In the copy of Ext.P11 which was served on the driver of the lorry the time for filing objection was stipulated as 24 hours. 6. Ext.P12 & P12(a) are objections filed by the petitioner and the Assistant Director (Lottery), Government of Sikkim, respectively. Ext.P13 is the order issued by the W.P.(C).26912/10 & con. cases -5- 6th respondent after considering such objections. It is found that the Advance Tax already remitted by the petitioner, for draws to be conducted upto 31.8.2010 under the old scheme, could not be considered as remittance for the newly introduced draws. Further, in the light of the definition in Section 2(c) of the Taxation Act, the lotteries under transport need be treated as lotteries for “Bumper Draw”, which attracts payment of Advance Tax at the rate of Rs.17 lakhs per draw, and the same was not seen remitted. Under such circumstances, alleging that the transport was without proof of payment of tax, it was held that the lottery and the vehicle is liable to be detained under Section 30(1). The 6th respondent observed that, since there is an increase in prize money to Rs.50 lakhs from Rs.20 lakhs and since the draws are proposed to be conducted on 30.8.2010 and on 31.8.2010 which is 'Onam' and 'Ramzan' festival season in Kerala, the ingredients of “Bumper Draw” was satisfied and it should be considered as a special draw conducted on festival season promising more amount as prize, than it was promised in the usual draws. Thus, on the basis of the conclusion that the tickets pertain W.P.(C).26912/10 & con. cases -6- to 'Bumper Draw' of “Sikkim Super Deluxe” and “Sikkim Super Classic” lotteries for which Advance Tax was not remitted, the movement of lottery tickets was held to be illegal and fraudulent, warranting action under Section 30 (1) & (2) of the Taxation Act. Hence the 6th respondent, in exercise of powers conferred upon him under Section 30(1) & (2) read with Rule 19 of the Kerala Tax on Paper Lotteries Rules, 2005 (hereinafter referred to as the Rules), ordered seizure of the goods and the vehicle, for production before the 5th respondent for initiating further proceedings. 7. Challenge against Ext.P10, P11 & P13 is on the ground that the action initiated by the 6th respondent was totally illegal and erroneous and had resulted in a total erroneous exercise of jurisdiction vested on him and such action had resulted in infringement of fundamental rights of the petitioner protected under the Constitution of India. The consequent actions initiated by the 5th respondent for imposing penalty under Section 27(1) & 30(1) of the Taxation Act, were also challenged contending that such actions were proposed only on the basis of findings in Ext.P13 with a predetermination, only for quantifying the W.P.(C).26912/10 & con. cases -7- penalty based on such findings. 8. A scanning of the relevant provisions will be beneficial in this context. Conduct of lotteries within the country is regulated by a central legislation, the Lotteries (Regulation) Act, 1998, (hereinafter referred to as the Central Act). Section 3 of the Central Act prohibits conduct of lotteries within the country otherwise than as provided under Section 4, subject to restrictions imposed thereunder, in sub-sections (a) to (k). Section 4 permits the State Governments to organize, conduct, or promote a lottery, subject to such conditions. The Taxation Act is intended only to provide levy and collection of tax on the conduct of paper lotteries within the State. Section 6 of the Taxation Act prescribes the rate of tax, at Rs.17 lakhs for every 'Bumper Draw' and at Rs.7 lakhs for any other draw. Section 8 deals with filing of returns, completion of assessments, payment of tax, collection and recovery etc:. Section 8 insists upon every promoter to get himself registered under the Act and it cast obligation on the promoter for submission of returns. Sub-section (3) of Section 8 enables the Assistant Commissioner to make W.P.(C).26912/10 & con. cases -8- assessment on the basis of the return. Sub-section (4) of Section 8 further enables best judgment assessment in cases where the return submitted is incorrect or incomplete. Sub-section (5) of Section 8 enables imposition of penalty equal at two times of the tax amount, in addition to collection of tax, when there is any non-disclosure in the return. Sub-section (2) of Section 8 prescribes that before submission of the return the promoter is bound to pay Advance Tax, as provided under Section 10, to the extent of full amount tax payable by him and to furnish satisfactory proof of such payment along with the return. It is mentioned therein that the payment of such Advance Tax will be deemed as payments effected towards final assessment. 9. Section 10 of the Taxation Act which deals with payment of Advance Tax, is extracted below:- “10. Payment of tax in advance :- (1) Subject to such rules as may be prescribed, every promoter shall submit on the 1st day of every month, if the first day being a holiday, on the immediate next working day, to the Assistant Commissioner a statement containing such particulars, as may be prescribed relating to the draws to be conducted during the month commencing from the next succeeding month and W.P.(C).26912/10 & con. cases -9- shall pay in advance the full amount of tax payable by him under this Act, in respect of the draws shown in the Statement and the amount so payable shall for the purpose of section 12, be deemed to be an amount due under this Act from such promoter. (2) If default is committed in the payment of tax for any month, whether a statement as required under sub-section (1) is filed or not, or if the amount of tax paid is less than the amount of tax payable for any month, the promoter defaulting payment of tax or making short payment of tax shall, in addition to the tax, pay interest calculated at the rate of two per cent per month from the date of such default or short payment to the date of payment of such tax. (3) If no such statement is submitted by a promoter under sub-section (1), before the date specify or if the statement submitted by him appears to the Assistant Commissioner to be incorrect or in complete, the Assistant Commissioner may assess the promoter provisionally for that month to the best of his judgment, recording the reasons for such assessment, and proceed to demand and collect the tax forthwith on the basis of such assessment, the above said tax shall immediately be adjusted towards the security amount paid under sub-section (1) of Section 7. (4) Without prejudice to the actions contemplated under sub-sections (2) and (3) above, the Assistant Commissioner shall cancel the registration of the promoter granted under this Act and on such cancellation of registration, the promoter shall not be entitled to sell lottery tickets within the State; Provided that before taking action under this sub-sections (3) and (4), the promoter shall be given a reasonable opportunity of being heard; Provided further that if the promoter makes payment of the defaulted tax with interest the Assistant Commissioner, on application, may register the promoter or such person on payment or registration/renewal fees and security at the prescribed rate.” 10. On the facts of the case at hand it is admitted that W.P.(C).26912/10 & con. cases -10- the petitioner is the registered promoter for the lottery organized by the state of Sikkim and he had remitted Advance Tax on the first day of July 2010 (revised payment made on 3.7.2010 also). It is also admitted that the organizing State (Government of Sikkim) had revised the scheme with respect to draws proposed on 30.8.2010 and on 31.8.2010, which pertain to the detained lottery tickets. Admittedly, by virtue of the revision in the scheme the prize money as well as the price of tickets were enhanced. It is very pertinent to note that the levy and collection of the tax is on the basis of “Draw” and not on the basis of “Scheme”, going by Sections 6, 8 and 10 of the Taxation Act. As per Section 6, there is no difference in the rate of tax with respect to any 'draw' other than a 'Bumper Draw'. There is no prohibition or restriction either in the Central Act or in the Taxation Act with respect to change or revision of the scheme, at any time. But what is required is only a notification by the organising state. There is some controversy with respect to the fact of receipt of intimation regarding change of the scheme. But that controversy is totally irrelevant for deciding the issue involved, which W.P.(C).26912/10 & con. cases -11- basically pertains to payment of Advance Tax. Provisions contained in the Taxation Act or in the Rules does not indicate anything to the effect that, the Advance Tax received with respect to a particular draw proposed on a specific date under a particular scheme could not be reckoned as payment of Advance Tax for the draw to be conducted on that particular day, even if there any change in the scheme is effected in between. No deficiency in payment of Advance Tax can be attributed, merely because there occurred a change or revision in the scheme in between the date of payment and the date of draw. Deficiency in payment of Advance Tax will arise only in a case where the organizer is changing the nature of draw to a 'Bumper draw', after payment of the Advance Tax for an ordinary draw. Therefore the prime question arising for consideration is; (i) whether the detained lottery tickets pertains to a 'Bumper draw' or not and (ii) whether the actions contemplated under Section 30(1) & (2) and Section 27(1) were warranted in a case where there is only a deficiency or short-remittance in the amount of Advance Tax. W.P.(C).26912/10 & con. cases -12- 11. Before considering the issues as mentioned above, a more fundamental question regarding maintainability of these writ petitions need be looked into. On behalf of the respondents it was contended that the proceedings initiated under Section 30 has not yet been culminated in an order imposing penalty. It is only at the stage of a show cause notice and therefore the writ petition is highly premature. It is also contended that the Taxation Act provides alternate remedy by way of statutory appeal, which is efficacious in nature, and therefore this court should refrain from invoking its discretionary jurisdiction vested under Article 226 of the Constitution of India. 12. Per contra, it was contended by the petitioner that the proceedings initiated by the 6th respondent is 'per se' illegal, erroneous and unsustainable and there is total erroneous exercise of jurisdiction vested on the 6th respondent. Since the 6th respondent had conducted a full fledged adjudication and arrived at conclusions touching merits of the issue, further actions now being pursued by the 5th respondent are only consequential. If the basis upon which the proceedings now being pursued, which is the W.P.(C).26912/10 & con. cases -13- findings contained in Ext.P13, is found to be illegal and unsustainable, then there is no justification in permitting the 5th respondent to continue with such proceedings, is the argument. Further contention is that the action now being pursued by the 5th respondent is totally pre-conceived and predetermined, based on conclusions contained in Ext.P13. Considering those findings, only a quantification of penalty alone is left to be decided. Therefore the alternate remedy, even if available, is not a bar in entertaining the writ petition, is the contention. 13. Mr.Althaf Ahammed, senior counsel appearing on behalf of the petitioner, placed reliance on various decisions of the Hon'ble Supreme Court to canvass the position that, availability of an alternate remedy is not a bar for entertaining writ petition under Article 226. In Siemens Ltd. Vs. State of Maharashtra (2007(1) KLT 88 (SC)) the Hon'ble Supreme Court observed that, when a statutory authority had already applied its mind and formed an opinion regarding liability or otherwise of the petitioner, and if in passing such an order the authority had already determined the liability, it does not remain in the realm of a W.P.(C).26912/10 & con. cases -14- show cause notice and in such case the writ petition is maintainable. Learned senior counsel contended that the 6th respondent, after conducting adjudication, had already arrived at conclusions regarding liability and what remains is only a quantification. Therefore correctness of such findings are amenable to challenge under Article 226, is the contention. 14. In M.P. State Agro Industries Development Corporation Ltd. & Another Vs. Jahan Khan (2007 (10) SCC 88), the Hon'ble Supreme Court observed that there is no gainsaying that in a given case the High Court shall not entertain a writ petition on the ground of availability of alternate remedy, but the said rule could not be of universal application. The exclusion of writ jurisdiction due to availability of alternate remedy, is a rule of discretion and is not one of compulsion. In an appropriate case, inspite of availability of alternate remedy, a writ court may still exercise its discretionary jurisdiction for a judicial review in at least 3 contingencies; viz., (i) where the writ petition seeks enforcement of any of the fundamental rights; (ii) where there is failure of principles of natural justice; or (iii) W.P.(C).26912/10 & con. cases -15- where the orders or proceedings are wholly without jurisdiction or the vires of an Act is under challenge. According to learned senior counsel, there is clear infringement of fundamental rights in this case, because the proceedings initiated is wholly without jurisdiction. 15. Yet another decision of the Hon'ble Supreme Court in Dhampur Sugar Mills Ltd. Vs. State of U.P. and others ((2007) 8 SCC 338) was pointed out to contend that once a policy decision is taken by the Government touching the issue involved, then the remedy of appeal cannot be termed as “alternative or equally efficacious”. In such cases filing of appeal is virtually from “Caesar to Caesar's wife” and it will be an 'empty formality' or 'futile attempt'. On the basis of the dictum, learned senior counsel pointed out that ample evidence is available to show that the Government have adopted a policy to restrain selling of lottery tickets organised by other states, and it is as part of such policy that the proceedings for detention was initiated. In this regard, attention was drawn to an order issued by the State Government, which is extracted in a writ petition filed by the very same petitioner. By the said W.P.(C).26912/10 & con. cases -16- order the State Government had suspended its officers on the allegation that they have erroneously accepted payment of Advance Tax from the petitioner. However, learned counsel appearing for the respondents objected such reference contending that the said document could not be taken note of as it is not part of pleadings in the present cases. 16. Mr. Jaideep Guptha, senior counsel appearing on behalf of respondents, raised contentions to the effect that none of the legal precedents cited above are applicable in the context of the present cases. It was pointed out that the issue involved in Dhampur Sugar Mills Ltd's case (cited supra) is one regarding territorial jurisdiction and lack of jurisdiction was alleged in that case. It was also contended that in the present cases there is no involvement of any Government policy in order to attract the dictum laid in M.P. State Agro Industries Development Corporation's case (cited supra). According to learned senior counsel, the proceedings now initiated invoking Section 30 has not culminated in any order imposing penalty and the petitioner could not preempt that penalty will be imposed by the 5th W.P.(C).26912/10 & con. cases -17- respondent. Therefore the apprehension expressed is highly premature, and availability of alternate remedy will prevent the petitioner from agitating the issue in these writ petitions, is the contention. 17. An indepth consideration of the provisions contained in Section 30 of the Taxation Act will be beneficial in deciding the issue, which is extracted hereunder. “30. Fraudulent transport of lottery tickets . (1) The transporting of lottery tickets without the authority of the Certificate of Registration and proof of payment of tax provided under this act is subject to detention by the officer authorized in this behalf and the transporter is liable to pay a penalty of Five Lakh Rupees or double the amount of the tax sought to be evaded, fraudulently from payment, whichever is higher; Provided that if the aforesaid amount is not paid, without prejudice to the recovery of the aforesaid fine, the vehicle through which the lottery tickets were transported shall liable to be confiscated, and the Assistant Commissioner shall sell them in public auction and the proceeds thereof equivalent to five lakh rupees or double the amount of the tax sought to be evaded whichever is higher shall be remitted to Government and the balance if any due after deducting the incidental expenses shall be refunded to the person from whom the lottery tickets and vehicle are confiscated; Provided further that penalty under this sub- section shall not be imposed or no action shall be taken without giving an opportunity to show cause and without giving a reasonable opportunity of being heard to the transporter, person in charge, or W.P.(C).26912/10 & con. cases -18- the registered owner of the vehicle. (2) The officer authorized to detain the lottery tickets shall seize the lottery tickets along with the vehicle in which they were transported and cause to be produced it before the Assistant Commissioner of competent jurisdiction within forty eight hours of such detention and seizure. 18. As indicated in the heading, Section 30 contemplates actions when a fraudulent transport of lottery tickets is suspected. Penalty is liable to be imposed only when it is proved that the transport of lottery tickets was effected without authority of the certificate of registration and/or proof of payment of tax, and only when it is established that there was a fraudulent attempt for evasion of tax. Sub-section (1) & (2) enumerate two distinct steps in the proceedings. Under sub-section (2) an officer can detain and seize the lottery tickets along with the vehicle and cause its production before the Assistant Commissioner, within 48 hours. Sub-section (1) says that on such detention by an authorised officer, the transporter is liable to pay penalty of Rs.5 lakhs or double the amount of tax sought to be evaded fraudulently, whichever is higher. Rule 19 authorises all officers of the Commercial Tax Department not below the rank of Assistant Sales Tax W.P.(C).26912/10 & con. cases -19- Officer/Inspector as officer authorised to inspect and seize the vehicles