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TMI Blog2020 (5) TMI 128X X X X Extracts X X X X X X X X Extracts X X X X ..... tteries organized by the 1st appellant in the State of Kerala. Constitutional validity of the Kerala Tax on Paper Lotteries Act, 2005 ('the Act' for short) is under challenge in the writ petition. The respondents herein are the respondents in the writ petition, the State of Kerala and its officials. 2. Brief history of the impugned legislation may be worth full to mention. By virtue of the Finance Act, 2001, introduced with effect from 23-07-2001, the State of Kerala has introduced Section 5BA to the Kerala General Sales Tax Act, 1963 ('KGST Act' for short) imposing licence fee on the draw of lotteries, in lieu of tax payable under Section 5 (1) of the KGST Act. Validity of Section 5BA was under challenge before this court. In the decision in Commercial Corporation of India Ltd. V. Additional Sales Tax Officer and others (2007 (2) KLT 397) = (2007 (2) KHC 427) this court held that Section 5BA of the KGST Act is ultra vires and unconstitutional. Eventhough the State of Kerala filed appeal before the Division Bench, it was dismissed by relying on the dictum laid by the Hon'ble Supreme Court in Sunrise Associates V. Govt. of NCT of New Delhi and others (AIR 2006 SC 1908), in which ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... renewed from year to year on payment of the prescribed fees and security, until it is cancelled; (3) Unless the registration is cancelled or renewed at the expiry of the period of registration, the security may be refunded or released to the promoter after adjusting any or all amount due from him, under this Act; 8. Returns and Assessment.- (1) Notwithstanding anything contained in section 10, every promoter liable to get himself registered under this Act shall submit a return to the Assistant Commissioner for such period, within such period and in such manner containing such particular as may be prescribed. (2) Before any promoter submits any return under sub- section (1), he shall in the prescribed manner, pay in advance as provided under section 10, the full amount of Tax payable by him under section 6 and shall furnish along with the return satisfactory proof of the payment of such tax, and after the final assessment is made the amount of tax so paid shall be deemed to have been paid towards the tax finally assessed. (3) If the Assistant Commissioner is satisfied that any return submitted under sub-section (1) is correct and complete he shall assess the promoter on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in this section limiting the time within which any action may be taken or any order, assessment or reassessment may be made, shall apply to an assessment or reassessment made on the promoter in consequence of or to give effect to, any finding direction or order made under Sections 14, 15, 16 and 18 or any judgment or order made by the Supreme Court, the High Court or any other Court. 10. Payment of tax in advance.-(1) Subject to such rules as may be prescribed, every promoter shall submit on the 1 st 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tickets organized by the Government of India or the Government of a State or any Union Territory or any country having bilateral agreement or treaty with the Government of India:-" "2. (l) "Promoter" means the Government of India or Government of a State or a Union Territory or any country who had entered into a bi-lateral agreement or a treaty with the Government of India for organizing, conducting or promoting a lottery and includes, any 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 State; 5. The main ground of attack against validity of the impugned Act is the lack of legislative competence of the state. It is pointed out that, the subject "lotteries organised by the Government of India or the Government of a State" (hereinafter referred to as 'state organised lotteries', for brevity) is within the realm of the legislative competence of the Parliament, by virtue of Entry 40 in List-I of the 7th Schedule in the Constitution of India. It is in exercise of that power that the Parliament has enacted the Lotteries (Regulation) Act, 1998. The said legislation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstitution does not bar making of law on tax in respect of the same subject which is reserved for the Parliament for the purpose of regulatory legislation. With respect to contention regarding extra territorial operation, the learned Single Judge, after referring to the 'charging section' as well as to Section 7 relating to 'registration of Promoters' read with the definition of 'Promoter', held that the activity which attract tax is the conduct of lotteries, which involves sale of lottery tickets prior to the draw. The Promoter is a person selling lottery tickets in the State of Kerala, who is liable to pay tax under Section 6 of the Act. It was held that the levy of tax is not merely on the draw of tickets, which of courses take place outside the state. But 'draw' is only a measure of levy of the tax and what attracts the tax is the activity of conduct of lotteries, in which one of the most important part is the marketing of tickets, which takes place within the State of Kerala. Therefore the contention regarding extra territorial operation of the impugned Act was rejected. With respect to the allegation of vagueness in the statute, it was observed that, the 2nd appellant had adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addressed arguments as instructed by Sri. C.E. Unnikrishnan, Special Government Pleader (Taxes), State of Kerala. 8. Addressing this court on the question of legislative competence, Senior Counsel for the appellants had drawn our attention to the following entries in the 7th Schedule of the Constitution. (a) Entry 40 of List-I (union list) - Lotteries organised by the Government of India or the Government of a State. (b) Entry 97 of List-I (union list) - Any other matter not enumerated in List-II or List- III including any tax not mentioned in either of those List. (c) Entry 34 of List-II (State List) - Betting and Gambling. (d) Entry 62 of List-II (State List) - Tax on Luxuries, including Taxes on entertainments, amusements, betting and gambling. It is pointed out that, by virtue of Entry 40 of List-I, the state organized lotteries are not covered under the subject of 'betting and gambling' contained in Entry 34 of List-II. The state legislature is competent to legislate on the general subject of 'betting and gambling' in exercise of power conferred under Entry 34 of List-II. It is true that lottery is a specie of gambling. But the state organised lotteries is a specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Constitution. The Constitutional position cannot be altered by an act of the State legislature. In J.K. Bharati V. State of Maharashtra and others ((1984) 3 SCC 704) the above principle has been reiterated by the apex court and held as follows; "While lotteries organised by the Government of India or the Government of the State have been taken out from Entry 34 of List II of Schedule VII by Entry 40 of List 1, therefore no question about the competence of the Legislature of Maharashtra to legislate in respect of the sale or distribution, in the State of Maharashtra, of tickets of all lotteries organized by any agency whatsoever other than the Government of India or the Government of a State. Evidently in J.K. Bharati (supra), the Hon'ble Supreme Court made a distinction between lotteries 'organised' by the Government and lotteries which are 'authorised' by the Government and organized by institutions and persons other than the Government. It was held that, only the lotteries organized by the Governments (state organised lotteries) which is the subject as carved out of Entry 34 of List-II, alone is covered by the specific entry in the Union list, Entry 40 of List-I. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... generally covered under Item No. 34 of List II (State List)." 12. Contentions on behalf of the appellants based on the decisions cited above is that, the subject of legislation with respect to state organised lotteries is within the exclusive competence of the Parliament under Entry 40 of List-I. The subject of state organized lotteries, thus gets carved out of the legislative field comprised under the general expression of 'betting and gambling' under Entry 34 of List-II and no legislature of a State can make any law touching upon the state organised lotteries. 13. The learned Single Judge has negatived the above contention by holding that the power to taxation is different from the power to make legislation in the form of regulation. Reliance was placed on the decision of M/s. B .R. Enterprises (supra) that, lottery is 'gambling' and therefore obeviously tax on lottery is a subject covered by Entry 62 of List-II of the 7th Schedule. While answering the question whether the Entry 40 of List I will stand in the way of state legislature imposing tax on lotteries, the learned Single Judge placed reliance on the decision in Kesoram Industries Ltd. (supra), wherein it is held that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y mentioned in the entry shall also include within its expanse the legislations touching incidental and ancillary matters. (5) Where the legislative competence of a Legislature of any State is questioned on the ground that it encroaches upon the legislative competence of Parliament to enact a law, the question one has to ask is whether the legislation relates to any of the entries in Lists I or III. If it does, no further question need be asked and Parliament's legislative competence must be upheld. Where there are three Lists containing a large number of entries, there is bound to be some overlapping among them. In such a situation the doctrine of pith and substance has to be applied to determine as to which entry does a given piece of legislation relate. Once it is so determined, any incidental trenching on the field reserved to the other Legislature is of no consequence. The Court has to look at the substance of the matter. The doctrine of pith and substance is sometimes expressed in terms of ascertaining the true character of legislation. The name given by the Legislature to the legislation is immaterial. Regard must be had to the enactment as a whole, to its main objects and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect to the state organised lotteries stands vested in Entry 40 of List-I. This is because, by virtue of Entry 62 of List-II the taxing power of the state on 'gambling' remains within the legislative competence of the state and since lottery is covered under 'gambling', taxation imposed on lottery is valid and is within the legislative competence of the state. In reply to the above contention, Sri. S.K. Bagaria, learned Senior Counsel for the appellants submitted that, under the scheme of distribution of powers between the union and the states, under Lists I and II, when the subject of state organized lotteries has been specifically assigned to the exclusive domain of the Parliament, and consequently gets carved out of the general expression of "betting and gambling" contained in Entry 34 of List II, the very same expression "betting and gambling" in Entry 62 of List II cannot be construed to include the state organized lotteries within the competence of the state legislature, for the purpose of taxing. The taxing Entry 62 of List II conferring power upon the state legislature is limited to levy tax on "betting and gambling," which is within their legislative competence under Entry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore the State legislature is not competent to make any legislation imposing tax with respect to a subject which is not included in the first group, contained in Entries 1 to 44. It is pointed out that, the above distinction in the division of legislative powers is also manifest from Article 248 of the Constitution of India and the residual Entry 97 in List I of the 7th Schedule. As long as state organized lotteries remains carved out of the subject of "betting and gambling" included under Entry 34 of List II and the subject of state organized lotteries is exclusively included within the domain of the Parliament under Entry 40 of List I, there is no power vested with the state to legislate on taxation of the state organized lotteries, is the contention. Learned Senior Counsel for the appellants also placed reliance upon the Constitution Bench decision of the Hon'ble Supreme Court in State of Bombay v. RMD Chamarbaugwalla (AIR 1957 SC 699), in support of the above. 16. Emphasizing the above contentions, learned Senior Counsel for the appellants argued that, when one and the same expression is used at different places in a statute, unless the context otherwise requires, those expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fferent meaning is given then the field of the two Articles would be different. So, when instead of the words `trade and commerce' in Article 301, the words `trade or business' is used it necessarily has different and wider connotation than merely `trade and commerce'". Learned Senior Counsel Sri.S.K. Bagaria also placed reliance on a decision of the Hon'ble Supreme Court in Jindal Stainless Ltd. & Anr v State of Haryana [(2017) 12 SCC 1] to support the principle that, when the same words or phrases are used in different parts of the Constitution, the same meaning should be ascribed to such words, unless the context demand otherwise. In para 976.3 of the said judgment it is held as under; "It is well known principle of statutory interpretation of Constitution that when the same words or phrases are used in different parts of the Constitution, the same meaning should be ascribed to such word unless the context demands otherwise. It is sufficient to refer to judgment of this Court in Kesavananda Bharati Versus State of Kerala, (1973) 4 SCC 225. Justice "Hegde and Mukherjea" in Para 640 had reiterated the above principle as: "...it is one of the accepted rules of construction that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n capital value of agricultural land was introduced. Entry 86 of List I enumerates the subject, "Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies; taxes on the capital of companies". Entry 49 of List II deal with "Taxes on lands and buildings'. The decision of the High Court in that case was that, when by virtue of Entry 86 of List I, the power to impose Wealth Tax on agricultural land remains withdrawn from the competency of the Parliament, it was not open to enact such a law in exercise of the legislative competence vested under Entry 97 of List I. The High Court held that the impugned Act in its pith and substance was intended to impose tax on capital value of the assets including agricultural land, which stood excluded from the power under Entry 86 of List I. The Supreme Court, however, allowed the appeal filed by the Union of India and held inter alia as follows; "17. There does not seem to be any dispute that the Constitution-makers wanted to give residuary powers of legislation to the Union Parliament. Indeed, this is obvious from Article 248 and entry 97 List I. But there is a serious dispute about the extent of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to entry 49, List II, or did not impose a tax mentioned in entry 49, List II. If that is so, then the legislation is valid either under entry 86 List I, read with entry 97, List I, or entry 97 List I, standing by itself. 86. Therefore, it seems to us that the whole of the impugned Act clearly falls within entry 97 List I. We may mention that this Court has never held that the original Wealth Tax Act fell under entry 86 List I. It was only assumed that the original Wealth Tax Act fell within entry 86 List I and on that assumption this entry was analysed and contrasted with entry 49 List II. Be that as it may, we are dearly of the opinion that no part of the impugned legislation falls within entry 86 List I. 87. However, assuming that the Wealth Tax Act, as originally enacted, is held to be legislation under entry 86 List I, there is nothing in the Constitution to prevent Parliament from combining its powers under entry 86 List I with its powers under entry 97 I. There is no principle that we know of which debars Parliament from relying on the powers under specified entries 1 to 96, List I, and supplement them with the powers under entry 97 List I and Article 248, and for that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 40 of List I, and being not covered under Entry 34 of List II, cannot be construed as to be included in the taxation Entry of 62 of List II, under the general subject of "betting and gambling". In view of the Constitutional scheme, the subject of state organized lotteries, not having been enumerated in List II, the legislative competence to levy tax on the said subject is exclusively within the domain of the Parliament under Entry 97 of List I. Therefore it is contended that the state legislature is lacking competence to impose tax on state organized lotteries under entry 62 of List II. 20. Sri. Shishodia, learned Senior Counsel for the respondent/State, contended that, the entries relating to the general subjects of legislation are different from those relating to taxation. In support of the proposition, he also placed reliance on the decisions in Kesoram Industries Ltd.(supra), RMD Chamarbaugwalla(supra), Jindal Stainless Ltd.(supra) and Harbhajan Singh Dhillon(supra). It is vehemently argued that, in the present case the scope and ambit of the expression "betting and gambling" in Entry 62 of List II is different from the scope and ambit of Entry 34 of List II and Entry 40 of L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . State of Maharashtra and others - writ petition No.432/2007 and connected cases). Validity of the Maharashtra Tax on Lotteries Act, 2006 was under challenge in those cases based on the ground of lack of legislative competence. The charging section in the said enactment was specific to the effect that the tax is intended to be levied and collected on the 'lottery schemes' specified under provisions of the charging section itself. The High Court of Bombay found that, definition of the term "lottery" contained in the Act describe the meaning of lottery as a scheme. It was held that it is the scheme of lottery which is being taxed. With respect to the argument that the state organized lotteries stands excluded from the ambit and scope of the term 'betting and gambling' contained in Entry 62 of List II of the 7th Schedule, it was found that the argument is misconceived and is against settled law, because it was found as against the dictum laid down in Kesoram Industries Ltd. (supra). Observation was that, because of Entry 40 of List I, the state legislature does not have power to legislate in relation to the state organized lotteries, under Entry 34 of List II. But because of that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... virtue of the residuary Entry 97 of List-I of the 7th Schedule of the Constitution. Hence the challenge based on the legislative competence was negatived. 22. From the findings rendered by the High Court of Bombay as enumerated above, it is evident that the issue was not analysed based on the contention that, whether the term 'betting and gambling' contained in Entry 34 and Entry 62 of List II need be construed as carrying different meanings. Since the issue has not been considered in that perspective, we are not persuaded to follow the analysis adopted by the High Court of Bombay. We are on respectful disagreement with the findings rendered by that court when the issue is analysed on the basis of its real perspective as mentioned above. 23. It is noticed that, from the judgment of the High Court of Bombay in N.V. Marketing (supra) a review was sought for before that court. In the decision in Sree Mangalmoorthy Marketing V. State of Maharashtra (2019 (2) Bombay CR 1) the review petitions were dismissed by that court by reiterating the findings in the original judgment, that under Entry 62 of List II of the 7th Schedule the state legislature has got power to impose tax in relatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that, it refers to any other matters not enumerated in List-II or List III, including any tax not mentioned in either of those list. Since the Hon'ble Supreme Court in the decision in B.R. Enterprises (supra) held that, eventhough the state organized lotteries will fall within the realm of 'gambling', there is no change in the character between lotteries under Entry 34 of List II and under Entry 40 of List II. But, when the state organized lotteries are covered under Entry 40 of List I, such lotteries cannot be read into the state list by taking assistance of any entry. Therefore it was held that, state has no legislative competence to enact the impugned law. The impugned enactment was set aside in that case. That court also held that, taxation imposed is extra territorial in operation and cannot be sustained. The amounts deposited by the petitioners in those cases were directed to be refunded. It is pertinent to note that, in the decision of the High Court of Karnataka, the issue was in fact analysed in a more or less similar manner as discussed hereinabove. The conclusion is to the effect that, when the subject of state organized lotteries stands within the realm of com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e chargability is on the 'draw', the same is held only in the State of Sikkim and not in the State of Kerala, making the event totally extra territorial. It is pointed out that, definition of the term 'lottery' contained in the impugned enactment only define the expression "lottery". It has nothing to do with the chargability or the taxing event. Sub-Section (2) of Section 6 provides that, the tax levied under Sub-Section (1) shall be paid by the Promoter. Sub-clause (3) therein provides that if the organizing state appoints more than one Promoter in the State of Kerala, one such Promoter duly authorised by the respective state shall pay the tax levied under Sub-Section (1). But Sub-Section (1) of Section 6 is not specific with respect to the chargability or on the incidence of taxation. Therefore Sub- Section (2) or Sub-Section (3) does not create any chargability or payability, apart from Sub-Section (1). There is complete ambiguity, uncertainity and vagueness in the charging section itself and it fails to create any charge or in providing any taxing event. Consequently the enactment fails to create any charge which is leviable and collectable, is the contention. 26. Learned Sen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able, it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness ill the legislative scheme defining any of those components of the levy will be fatal to its validity." The learned Senior Counsel further placed reliance on a decision of the Hon'ble Supreme Court in Madhuram Agarwal V. State of Madhya pradesh ((1999) 8 SCC 667). A Constitution Bench of the Hon'ble apex court while dealing with vires of the provisions in Madhya pradesh Municipality Act, 1961, held as follows; "In a taxing Act it is not possible to assume any intention or governing purpose of the statute more than what is stated in the plain language. It is not the economic results sought to be obtained by making the provision which is relevant in interpreting a fiscal statute. Equally impermissible is an interpretation which does not follow from the plain, unambiguous language of the statute. Words cannot be added to or substituted so as to give a meaning to the statute which will serve the spirit and intention of the legislature. The statute should clearly and unambiguously convey the three components of the tax law i.e., the subject of the tax, the person who is liable to pay the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailure to express itself clearly". The learned Senior Counsel for the appellants also placed for consideration some of the observations made of the Hon'ble Supreme Court in Kesoram Industries Ltd. (supra), which are as follows; "It is well- settled that power to tax cannot be inferred by implication; there must be a charging section specifically empowering the State to levy tax." (para 98) "There is nothing like an implied power to tax. The source of power which does not specifically speak of taxation cannot be so interpreted by expanding its width as to include therein the power to tax by implication or by necessary inference." (para 104) "A taxing statute is to be strictly construed. The well- established rule in the familiar words of Lord Wensleydale, reaffirmed by Lord Halsbury and Lord Simonds, means : "The subject is not to be taxed without clear words for that purpose; and also that every Act of Parliament must be read according to the natural construction of its words". In a classic passage Lord Cairns stated the principle thus ; "If the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but there is a distinction between such a tax and a tax on the taxable event. In the first case the subject matter of tax is the goods and the taxable event is within the incidence of the tax on the goods. In the second the taxable event is the subject matter of tax itself." Summing up the contentions on the point, Sri. S.K. Bagaria argued that, simply by mentioning as "tax on paper lotteries" no charge is created in the charging section, because no taxing event at all is mentioned in the said provision. The taxing event or the taxable event should be one, which on its occurrence creates or attracts the liability of tax. Identification of the subject matter of the tax is to be found based on the charging section alone. The liability or chargability should be specific on the taxable event, which does not exist earlier or accrue at any later point of time. The necessary ingredients of a charging section essential for creating a valid charge, as laid down by the Hon'ble Supreme Court in the above cited decisions, are not satisfied in Section 6 of the impugned Act and there is complete uncertainity, ambiguity and vagueness in the charging section itself, is the argument. Going by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he preamble would indicate the whole lot of activity, either in its entirety or in part thereof. Therefore the language of the charging section is totally unambiguous and the taxable event attracting the levy of tax is certain and clearly spelled out, is the argument. 29. Per contra, Sri. Bagaria pointed out that, history of the legislation would reveal that the impugned Act was introduced when the validity of Section 5(BA) of the KGST Act was challenged. The impugned Act came into force on 08.04.2005, at a point of time prior to settlement of the law on the point, by the Hon'ble Supreme Court in Sunrise Associates(supra), which was decided only on 28.04.2006. Therefore it is evident that the enactment was introduced only with an intention to levy tax on the sale of lottery tickets of paper lotteries in the State of Kerala. The above said aspect is clear and evident from the 'statement of objects and reasons' appended to the legislation, which clearly says that the Government have decided to levy and collect tax on paper lotteries sold in the State of Kerala. It is pointed out that, it remains well settled that no tax can be imposed on the sale of lottery tickets within the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 'chance to win' is concerned, as contended by the appellants, that itself is neither taxable nor it is taxed under the impugned legislation. According to the appellants, there is no question of taxing any 'chance to win' or any so-called 'predominant element' or any 'attribute' of the transaction. It is pointed out that there is no legislative history of any tax being levied only with reference to an 'attribute', as held in Godfrey Phillips (India) Ltd. (supra). Hence it is reiterated that, apart from wording of the charging section "tax on paper lotteries", the taxable event upon which the charge is to be imposed is totally absent. There is no much dispute that the draw is only a measure provided for the purpose of fixing the quantum of tax and it cannot be said that tax is levied on the draw. Hence the draw also cannot be considered as a taxable event. 31. While evaluating the issue regarding validity of the charging section and with respect to its alleged vagueness, uncertainties or ambiguities, even on accepting the contentions of the respondents that the taxable event is the entire activity of the scheme of lottery, it is necessary for this court to consider whether the im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above context, even assuming that the expression "tax on paper lotteries" contained in the charging section indicates the whole lot of activity of the conduct of lotteries, whether the taxable event falls within the territorial limits of the State of Kerala, is the question posed. Can a part of the activity of distribution and sale of tickets within the State of Kerala alone can be taxed under the guise of the term "tax on paper lotteries", contained in the charging Section? In other words, whether any taxable event is taking place within the state. Can the events taking place within the state be presumed by co-relating with other activities with respect to the conduct of lottery taking place outside the state, to attract territorial competence? The said questions need to be analyzed based on the scheme provided in the Act for levy and collection of the tax. As already mentioned, the levy of tax is on the organising state or on the person appointed by that state for selling the lottery tickets within the State of Kerala. A person so appointed cannot be construed as a person responsible for organizing and conducting of the lottery. Further it has to be noted that the measure of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re marketed within the State of Kerala. The above aspect would again persuade this court to draw an inference that, what is sought to be taxed indirectly is the sale of the lottery tickets within the State of Kerala, which is prohibited by virtue of the law settled by the Hon'ble apex court. Sri. Pallav Shishodiya submitted that, even assuming that such a contention can be considered, it only relates to assessibility of the tax with respect to any particular draw, and is not one concerned with validity of the legislation. But the question become relevant for considering the aspect as to which is the 'event of taxation' or the 'instance of taxation' upon which the charge is made and also as to whether the taxation becomes extra territorial in nature. 32. Learned Senior Counsel for the respondent/state submitted that, contention regarding extra territorial operation of the Act, cannot be accepted. As contended earlier, it is pointed out that, what is sought to be taxed is the whole lot of activity of the lottery organized by the state concerned. If any part of the said activity takes place within the State of Kerala, then it has to be presumed that a territorial nexus is established ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up collection depots within the State to receive entry forms and the fees. They have appointed local collectors. Besides the circulation of the copies of the "Sporting Star", the petitioners print over 40,000 extra coupons for distribution which no doubt are available from their local collectors. The most important circumstance in these competitions is the alluring invitation to participate in the competition where very large prizes amounting to thousands of rupees and sometimes running into a lakh of rupees may be won at and for a paltry entrance fee of say 4 annas per entry. These advertisements reach a large number of people resident within the Stat. The gamblers, euphemistically called, the competitors, fill up the entry forms and either leave it along with the entry fees at the collection depots set up in the State of Bombay or- send the same by post from Bombay. All the activities that the gambler is ordinarily expected to undertake take place, mostly if not entirely, in the State of Bombay and after sending the entry forms and the fees the gamblers hold their soul in patience in great expectations that fortune may smile on them. In our judgment the standing invitations, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the discussions is that, the charging section or any other provision of the Act is not at all clear as to what is the charge and which is the instance of taxation. If the tax is imposed on the sale of lottery tickets conducted in the State of Kerala, then it will offend the law remaining settled in Sunrise Associates(supra). If it is accepted that the taxation is on the entire activity of organisation and conduct of the lottery, it becomes extra territorial, because, except marketing a portion of the tickets in the State of Kerala, the entire activity takes place in other states. Further, even assuming that there is nexus established with the activity taking place in the other state, the tax is not imposed limited to the money which is being collected from the State of Kerala. Considering the definition of 'Promoter' which includes the person appointed for selling the lottery tickets within the State of Kerala, the tax is sought to be imposed on the basis of the draws which are taking place outside the territory and which is being done by the organizing state. The draw of each scheme of the lottery takes place based on the whole lot of tickets sold in the State of Sikkim and ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenge against a statute on the grounds of constitutional vires. In Devilal Modi (supra) the factual circumstance was completely different. The assessee in that case challenged validity of the tax imposed with respect to a particular year, in a writ petition filed. The court declinied the challenges and an appeal against the said order was also dismissed by the Hon'ble Supreme Court, on merits. The assessee attempted to raise two more additional grounds before the Supreme Court, which was not allowed because those were not taken before the High Court. Subsequently, on the same issue and with respect to the same assessment, another writ petition was filed. It was held that, after judgment of the Supreme Court it was no more open to the assessee to file a new writ petition challenging the same impugned order on some other grounds. We do not find such a situation here. In the present writ petition the challenge is against the constitutional vires of a statute on various grounds including the legislative competence of the state. Hence it cannot be said that the doctrine of 'constructive res judicata' would apply in the case at hand. 35. Sri. Shishodia pointed out that, the 2nd appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Incidentally, learned Senior Counsel for the respondents / State argued that, even if this court finds that the impugned legislation is invalid due to its constitutional vires, there can only be a prospective overruling. In other words, even if the impugned Act is held as illegal and ultra vires, such decision should be applied only prospectively, from the date of the judgment. The above argument is resisted by Sri. Bagaria by pointing out that, the doctrine of prospective overruling cannot be utilized by the High Court and it can be invoked only by the Supreme Court. Once the High Court declares the law as invalid the collection made under such law also stands invalidated. He placed reliance on the decision of the Constitution Bench of the Supreme Court in State of H.P. V. Nurpur Private Bus Operators' Union and others ((1999) 9 SCC 599. In paragraph 10 of the said judgment it is stated as follows; "The High Court, in the judgment afore-mentioned, held that the levy and realisation of tax on the basis which had been held to be invalid by it "for the period between 1st April, 1991 and 30th September, 1992 shall not stand invalidated We propose to direct that the declaration made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs. It is also a devise adopted to avoid uncertainty and avoidable litigation. By the very object of prospective declaration of law, it is deemed that all actions taken contrary to the declaration of law prior to its date of declaration are validated. This is done in the larger public interest. (Emphasis supplied) The situation as contemplated cannot be said to be present in the case at hand. Therefore the doctrine of prospective overruling cannot be applied in the matter, by this court. 38. The issue lastly considered is with respect to claim for refund of the tax amount already paid by the appellants / writ petitioners. On behalf of the respondents it is submitted that, the tax due under the impugned legislation was paid by the 2nd appellant, who is the Distributor appointed by the 1st appellant - state and the liability has already been passed on to the customers, who purchased the lottery tickets. Therefore refund of the amount, if ordered, would amount to an unjust enrichment, which cannot be allowed. Per contra, the appellants contended that, the amount of tax realised represent the collections made invalidly and illegally, which the State of Kerala has recovered without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntemplated in Proposition (i) above or in a suit or writ petition in the situations contemplated by Proposition (ii) above, can succeed only if the petitioner/plaintiff alleges and establishes that he has not passed on the burden of duty to another person/other persons. His refund claim shall be allowed/decreed only when he establishes that he has not passed on the burden of the duty or to the extent he has not so passed on, as the case may be. Whether the claim for restitution is treated as a constitutional imperative or as a statutory requirement, it is neither an absolute right nor an unconditional obligation but is subject to the above requirement, as explained in the body of the judgment. Where the burden of the duty has been passed on, the claimant cannot say that he has suffered any real loss or prejudice. The real loss or prejudice is suffered in such a case by the person who has ultimately borne the burden and it is only that person who can legitimately claim its refund. But where such person does not come forward or where it is not possible to refund the amount to him for one or the other reason, it is just and appropriate that that amount is retained by the State, i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lotteries a minimum of Rs. 10,000/- per draw. Rule 3 (17) of the above said Rules provides that, the organizing State shall ensure that proceeds of the sale of the lottery tickets, as received from the Distributor or Selling Agents or any other source, are to be deposited in the public ledger account or in the consolidated fund of the organising state. Rule 4 of the said Rules deals with appointment of Distributor or Selling Agents. Sub-rule (4) therein provides that the organising State shall pay to the Distributors or Selling Agents any commission due to them. The Distributor is also bound to return the unsold tickets to the organising state with full account details. Evidently the price of the lottery tickets is fixed by the organising State and the Distributor gets only the commission. If the Distributor has paid any amount of tax under the impugned legislation, it cannot be taken that the liability has been passed on to the end consumer. It is clear that the liability in this regard is ultimately borne by the organising state. Since the ultimate liability with respect to payment of tax was borne by the State of Sikkim (the 1st appellant) the refund cannot be denied based on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson who borne the liability, there cannot be contended that the doctrine of unjust enrichment will apply. On the other hand, if it is of Distributor who had borne the liability, proof is required to the effect that the same has not been recouped from the State of Sikkim. In both the case, we are of the considered opinion that the refund cannot be denied by applying the doctrine of 'unjust enrichment'. But at the same time, it is for the appellants to produce materials regarding the person who had borne the real loss or who had ultimately borne the burden of payment of the tax, which is already collected invalidly. Proof regarding quantity of the tax collected is also not available. Therefore we hold that the appellants will be entitled for refund of the tax paid from the State Government, on their producing proper accounts and proof as to who had ultimately borne the burden. Such proof being produced, the State of Kerala is held liable for making refund. 41. Based on the findings rendered hereinabove, we are persuaded to allow the writ appeal and to set aside the impugned judgment of the Single Judge. Hence, the above writ appeal is hereby allowed. The impugned judgment of the Si ..... X X X X Extracts X X X X X X X X Extracts X X X X
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