WP(C)/23/2005 of Shree Jalaram Lottery Agency and anr. Vs State of Sikkim on 26 September 2005

1. M/s. Shree Jalaram Lottery Agency,258, Princess Street,Wadia Building,Mumbai -400 002,represented by J. U. Ganatra,Managing Partner of the said Agency.

2. M/s. ShreeJalaram Lottery Enterprises,represented by its Manager Shri Anup Sadhwani,aged about 34 years old,S/O (L) Parmanand Sadhawani,having its office at Hotel Hungry Jack,Gangtok, Sikkim ......... Petitioners.

VEF?SUS

1. The state of sikkim,through the Commissioner of Sales Tax,Government of Sikkim,Gangtok -737101.2. The commissioner/Secretary,Finance Department,Government of Sikkim,Tashiling Secretariat,Gangtok -737 101,East Sikkim,

3. Legal Remembrancer-cum-Secretary,Law Department,Government of Sikkim,Tashiling Secretariat,Gangtok -737101,East Sikkim......... Respondents.

For the PetitionersMr. H.S. Paonam, Advocate, Mr. N.Jotendro Singh assisted by Mr. J. K. PrasadJaiswal, Advocates.Jotendro Singh assisted by Mr. J. K. PrasadJaiswal, Advocates.

For the Respondents

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Mr. S. P. Wangdi, Advocate General assistedby Mr. J. 8. Pradhan and Mr. Karma ThinlayGovernment Advocates.by Mr. J. 8. Pradhan and Mr. Karma ThinlayGovernment Advocates.

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PRESENT : THE HON'BLE SHRI JUSTICE N. S.SINf 3F±9HI.E.F_J_U_STICE (ACTING).THE HON'BLE SHRI JUSTICEA. P. SUBBA, JUDC;E. `

Date of Judgment : 26th September, 2005.

JUD G M E N|

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ln this writ petition, the petitioners herein sought for thefollowing reliefs : - issue a rule nisi and call for the records;issue a writ of certiorari and/or any otherappropriate writ/other/direction quashing andsetting aside the impugned ordinance beingOrdinance No.1 of 2005 under NotificationNo.1/LD/P/2005 dated 4/4/2005 which waspublished in the Extra ordinary Gazette NotificationNo.152 as illegal;award cost of the petition against the respondent;:::i::tH°opn:;,Sescu::rtfumrt:;rd::°jhfi:ra°nr::rr:;e°rr„:e[S`

by contending, inter alia, that the impugned Ordinance being No.1 of 2005dated 4.4.2005 issued by the State-respondents is illegal and ultra-vires ofthe provision of the main Act namely, Sikkim Sales Tax Act, 1983 (forshort, Act Of 1983) inasmuch as the introduction of amended Section 5A tothe Act Of 1983 amounts to levy of taxes on the draws Of lotteries and noton the sale of lottery tickets, thereby shifting the incidence of taxes of thelottery tickets to the draw which is against the basic principle to taxationand the Constitution of India apart from causing discrimination to thepetitioners who are running draws for the two digit scheme of thetGovernment of Meghalaya against other agencies involved in lotteriesagencies and as such it is quite arbitrary, capricious, unconstitutionalIEi >nyffi , 2 .

rendering the same as unsustainable. It is also the case of the petitionersthat the impugned Ordinance has also sought to impose tax on tryLo digitlotteries of Meghalaya outside the State of Sikkim irrespective of whetheractual sales takes place in or outside State of Sikkim thus violating themandatory provisions Of Article 186(1 )(a) and 301 read with Article 304 ofthe Constitution of India.

2. F}esisting the case of the petitioners, the state-respondentsin their counter affidavit contended that the impugned Ordinance wasenacted with an objective of levying compounded rate of tax on sale oflottery tickets. In other words, compounded rate of tax is proposed to beimposed on the basis of average turnover of sales worked out at eachdraw as prescribed in the schedule to Sec. 5A of the impugned ordinance.It is therefore contended that the compound rate of sales tax is imposednot on the basis of each draw but on the average sale turnover of the saleof lottery tickets as an optional mode Of payment of sales tax to anassessee. In other words, when the draw takes place it is deemed thatsale has concluded and accordingly after each draw compound rate of taxis levied on the actual sale turn over of the lottery tickets. It was thuscontended that giving such option to a dealer does not shift the incidenceof sales tax from the sale of lottery tickets to the draw of the lottery.

3. Mr. N. Jotendro Singh, learned counsel appearing for thepetitioners and Mr. S. P. Wangi, the learned Advocate General for therespondents were heard.

4. Mr. N. Jotendro Singh, learned counsel appearing for thepetitioners contended that the impugned Ordinance as well as theproposed amendment of the Act are against the principle of law laid downby the Apex Court rendered in the case between H. Anraj v. Government C

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of Tamil Nadu reported in AIR 1986 SC 63. The learned counsel alsohighlightedthedecisionOftheHighCourtofBombayrenderedinV9.P.(C)No. 129 of 2001 wherein such and similar amended provisions of lawintroduced in the Bombay Sales Tax Act,1959 by Maharastra Governmentwere struck down by the Hon'ble High Court of Bombay as seen in thedocumentmarkedasAnnexure-A/4tothewritpetition.ItwassubmittedbytheleamedcounselthatthelawlaiddownbytheApexCourtinH.Anrajv.Government of Tamil Nadu reported in Am 1986 SC 63 which wasconsidered as good law may no longer be holding the filed now as theApex Court having appreciated the need to consider the principle laiddown in the above case have referred the matter to the ConstitutionalBench. Hence, as the question as to whether lottery ticket will be deemedas sale of goods for the purpose Of levying tax is presently underreconsiderationbeforetheApexCourtasatproceedingsatAnnexuresA#andA/8andapartfromittheimpugnedordinancewhichisalmostiden+calto the subject now pending before the Apex Coun may not be given effectto as the same would be quite inconsistent and against the judicialpropriety.

5. Mr. S. P. Wangdi, learned Advocate General contended thatgiving such option to dealer does not shift the incidence Of sales tax fromsale Of lottery tickets to the draw Of lottery tickets as contended in the writpetition. It is also submitted by the learned Advocate General that thepetitioner Nos.1 and 2 not being dealers as defined under the Act of 1983and Rules thereof do not have locus standi to file the writ petition andtherefore, under the said ordinance the State respondents have every right to impose such tax.

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6. According to us the contention raised by the AdvocateGeneral is totally misconceived. We are of the view that the subiftissionof Mr. Wangdi learned Advocate General on the basis of the impugnedordinance dated 04.04.05 that the related tax should be imposed upon thewrit petitioners is based on non-commonsense inasmuch as the relatedRule namely, Sikkim Sales Tax (Amendment) Rules, 2005 publishedunder a related Notification dated 12.07.2005 has not yet been publishedin the State Official Gazette though the same is mandatory in order tobring rules in operation under the law. At this stage we hereby recalldecisions of the Apex Court rendered in B.K. Srinivasan and anr. Vs. Stateof Karnataka reported in AIR 1987 SC 1059, wherein the Apex Court heldthus: - "15 ................ It is, therefore, necessary that subordinatelegislation, in order to take effect, must be published orpromulgated in some suitable manner, whether suchpublication or promulgation is prescribed by the parentstatute are not. It will then take effect from the date``qf 'such publication or promulgation. Where the -parentstatute prescribes the mode of publication orpromulgation that mode must be followed. Where theparent statute is silent, but the subordinate legislationitself prescribes the manner of publication, such a modeof publication may be sufficient, if reasonable. If thesubordinate legislation does not prescribe the mode ofpublication or if the subordinate legislation prescribes aplainly unreasonable mode of publication, it will takeeffect only when it is published through the customarilyrecognised official channel, namely, the Official Gazetteor some other reasonable mode of publication. Theremay be subordinate legislation which is concerned with afew individuals or is confined to small local areas. Insuch cases publication or promulgation by other meansmay be sufficient. See Narayana Reddy v. State OfAndhra Pradesh,1969 (1) Andh. WR 77."

Another decision Of the Apex Court, which was rendered in as early as1951 in the case between Harla V. The State Of Pajasthan reported in AIR(38) 1951 SC 467, it is held that ``Natural justice requires that before a law can become operative it must be promulgated or published". In the caseE=in hand, it was not done so.

7. Apart from that, Sikkim has its own Act called SikkimInterpretation and General Clauses Act,1977 (Act No. 6 of 1977) whereinSection 38 of it specifically lays down in the following order: - " Commencement38. Every Rules made under any SikkimOf F]ulesLaw shall be published in the OfficialGazette and shall, in the absence of anexpress provision to the contrary eitherin the rule or in the law under which it ismade, come into force on the day onwhich it is published in the OfficialGazette."

The above provision of law shows that it is mandatory to publishevery Ftules made under any Sikkim Law in Official Gazette. However,without making any publication in the Official Gazette, the State-respondents compelled the petitioners to pay faxes as discussed above,under the impugned Rule and Ordinance which according to us, it is too-+'much and it is against the law of the Land.

8. It may be noted that same and similar issue has alreadybeen brought to the notice Of the Hon'ble Supreme Court in a casebetween M/s Sunrise Associates vs. Govt. Of N.C.T. of Delhi & Ors. (CivilAppealNo.4552/1998on13.10.99)andtheHon'bleSupremeCourtmadethe following order: - "These appeals arise upon a decision rendered bya Division Bench of the High Court at Delhi. Followingthe judgment of this Court in H. Anraj Vs. Government ofTamil Nadu (1986 (1) SCC 414), it was held that theentire High Court declined to follow the view taken by theKamataka High Court in Nirmal Agency vs. Sales TaxOfficer, XIV Circle, Bangalore (86 STC 45) that the entireconsideration was not liable to sale tax but only thatportion thereof which related to the right of the purchaserof the ticket to participate in the lottery draw was so liable.a Division Bench of the High Court at Delhi. Followingthe judgment of this Court in H. Anraj Vs. Government ofTamil Nadu (1986 (1) SCC 414), it was held that theentire High Court declined to follow the view taken by theKamataka High Court in Nirmal Agency vs. Sales TaxOfficer, XIV Circle, Bangalore (86 STC 45) that the entireconsideration was not liable to sale tax but only thatportion thereof which related to the right of the purchaserof the ticket to participate in the lottery draw was so liable.

1.

The judgment of H. Anraj held that only thetransfer of the right to participate in the lottery draw,which took place on the sale of a lottery ticket, amountedto a transfer of goods; to the extent that the sale involvedthe transfer of the right to claim the prize, depending onchance, it was an assignment of an actionable claim.

The argLiment on behalf of the applicants beforeus is that there is no sale of goods when the ticket of alottery organised by a State is sold; at best, there is atransfer of chose in action. Alternatively, that the tworights of the purchaser, as found in H. Anraj, areinextricably linked so that no tax can be levied upon thelatter element, namely, the right to participate in thelottery draw. In other words, the principal argument onbehalf of the appellants is that the judgment in H. Anrajrequires reconsideration.

We are inclined to agree that the judgment in H.Anraj requires reconsideration for the reason that, primafacie, the only right Of the purchaser Of a lottery ticket is totake the chance of winning the prize. There seems to usto be no good reason to split the transaction of the sale ofa lottery ticket into the acquisition of (i) the right toparticipate in the lottery draw and (ii) the right to win theprize, dependent on chance.

In the case of Vikas Sales Corporation & Anr.Commissioner of Commercial Taxes & Anr. (1996 (:)`SCC 433), a bench of three learned Judges agreed withthe decision in H. Anraj. It is, therefore, necessary thatthese appeals should be heard by a Constitution Bench.

The papers and proceeds shall be placed beforethe Hon'ble the Chief Justice for appropriate directions."

This fact is not controverted by the State-respondents and onthe basis of the decision Of the Apex Court and after proper application ofour mind in the matter we have passed an ad-interim order on 15.07.2005and the relevant portion of the order is quoted below: - "No sales tax shall be levied or recovered in termsof the amended provisions of Section 5-A of the SalesTax Act of 1983 under the impugned ordinance No. 1 of2005 as in Annexure A/6 to the writ petition from thepetitioners until further orders of this Court. It is madeclear that this ad-interim order is absolutely temporary in d\ci'J

nature for the petitioners in the present case only and`it isan interim arrangement."

10. When the case was heard finally and reserved for judgmenton 20.09.2005, the State-respondents published a related notificationsdated 20.09.2005 and 21.09.2005 pertaining to amending Act, namely, theSikkim Sales Tax (Amendment) Act, 2005 and Rules called the SikkimSales Tax (Amendment) Rules, 2005, as seen in the related AdditionalAffidavit filed by the State-respondents as in Annexures R-5 and R-6 to it.We are astounded to note that the State-respondents published the tworelated notifications dated 20.09.2005 and 21.09.2005 as seen indocuments marked Annexures R-5 and R-6 to the Additional Affidavit ofthe State-respondents, in the Government Gazette when the matter issubjudice before this Court.

11. Be that as it may, liberty is granted to the petitioners toapproach the appropriate authority for questioning the validity Of the+Actand F{ules as seen in the Annexures F{-5 and R-6 to the AdditionalAffidavit, if so advised. However, it is made clear that, the impugnedordinance is bad in law and accordingly it is hereby quashed thus allowingthe writ petition. Further, it is made clear that the amended provision OfSection 5-A as seen in the document marked as Annexure R-5 i.e.notification dated 20.09.2005 [the Sikkim Sales Tax (Amendment) Act,2005] and rules thereof [the Sikkim Sales Tax (Amendment) Rules, 2005]as seen in the document marked as Annexure R-6 dated 21.09.2005 shallnot be given effect to in case of the present wT.it petitioners in respect oftheir concerned lottery business but, it is further made clear that theobservati.ons made by this Court in the forgoing paragraphs shall be +.\cdy, i '..L.

subject to the outcome of the decision of the Apex Court to be rendered inthe connected case in Civil Appeal No. 4552/1998.

12. In the result, the writ petition is allowed with a cost ofRs.10,000/- (F3upees ten thousand) which shall be paid by State-respondents herein within a period of one week from today and such costshall be treated as part of the fund of the Sikkim Bar Association as well asthe Sikkim State Legal Services Authority with equal shares i.e. Rs.5,000/-(Rupees five thousand) only each for which the State-respondents shalldeposit the same with the Registry of this Court within the stipulated periodas mentioned above and after such deposit, the authority of Sikkim BarAssociation as well as the Sikkim State Legal Services Authority are atliberty to withdraw the same from the Registry of this Court.

NNsifrii

CHIEF JUSTICE (ACTING)

I agree.

JUDGE26.09.2005