Kerala GST Rules interfering with lottery business are Unconstitutional

M/s Teesta Distribution Vs State of Kerala (Kerala High Court)

Therefore, the writ petition is disposed with the following directions:

(I) Rule 56(20A)(iii)(d) of the Kerala State GST Rules is struck down holding that the State has no legislative competence to formulate such Rule.

(II) The challenge to the vires of other Rules is negatived.

(III) It is declared that the officials under the Tax Department have no power to enter into satisfaction as to whether the lottery was conducted in compliance with the Lotteries (Regulation) Act or not.

(IV) Ext.P26 is quashed to the extent forbearing the petitioners from proceeding further with the sale of lottery.

(V) If the petitioners raise an objection before the Deputy Commissioner of State Goods & Services Tax Department, Kerala, questioning the jurisdiction of the officials under the Kerala State GST Act and Rules, that question shall be considered within one month after affording an opportunity of hearing.

FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT

1. This case raises an important question on the scope of exercise of power by a State invoking its police power as well as tax regime to interfere with the sale of other State lotteries.

2. The State of Kerala is not a lottery free zone, means to say that, there is no prohibition of sale of lottery. The first petitioner is a distributor of lottery, organised and conducted by the Government of Mizoram. In this writ petition, the petitioners highlight grievance regarding interference of sale of tickets by the Government of Kerala, using police power and also using the authority of officials under the Kerala State Goods and Services Tax Act, 2017 (for short, the “Kerala State GST Act”). Apart from challenging the action as above, the petitioners also have challenged certain rules in the Kerala State Goods and Services Tax Rules, 2017 (for short, the “Kerala State GST Rules”) on a premise that these rules are colourable exercise of delegated legislation to interfere with rightful conduct of lottery business in the State.

3. Brief accounts of facts involved in the case are as follows:

The first petitioner firm is a partnership firm. The second petitioner is the authorised signatory of the first petitioner-partnership firm. The first petitioner was appointed by the State of Mizoram as a selling agent of Mizoram State lottery. The Mizoram State issued a notification on 13.7.2017 in terms of Section 4 of the Lotteries (Regulation) Act, 1998 read with Rule 3(3) of the Lotteries (Regulation) Rules, 2010 on the launch of their Lottery Scheme. Ext.P10 is the said notification. In the said notification, it was mentioned that, first draw would commence on 7.8.2017 at 3 pm onwards. Based on such notification, the State of Mizoram decided to market and sell Mizoram State Lotteries in the State of Kerala. Prior intimation was also given to the Chief Secretary of Kerala by communication dated 21.7.2017. Ext.P11 is the said communication. According to the petitioners, this intimation was given in compliance of Rule 3(3) of the Lotteries (Regulation) Rules. It is stated in the writ petition that the said communication also included all the information required under the law by giving details such as names of selling agents/distributor, name of the Lottery Scheme, number of tickets printed, gross value of tickets etc.

However, this notification was superseded by another notification dated 24.7.2017 and published, which is evident from Ext.P14. This was owing to the reason that notification dated 13.7.2017 carried a mistake as it was mentioned that the notification was forwarded to West Bengal instead of Kerala. According to the petitioners, the lotteries were also printed and supplied by State of Mizoram after complying with the security norms and the Government of Mizoram made arrangements to deliver the tickets to the petitioners in the State. It is specifically pleaded that Ext.P14 notification dated 24.7.2017 was also addressed to the State of Kerala.

4. The first petitioner also obtained GST Registration Certificate from the Union Government and the Government of Kerala. An officer of Mizoram Government delivered the tickets to the petitioners on 26.7.2017. This was accompanied by documents for movement of goods. These tickets were for the period of draw to be held from 7.8.2017 to 13.8.2017.

5. It is to be noted that under Rule 3 of Lotteries (Regulation) Rules, the organizing State shall in advance, by a notification, provide information of every lottery conducted by them. In case, the organizing State decides to organise more than one lottery, the procedure as provided under sub-rule 3 of Rule 3 will have to be followed for every such lottery. [See Rule 3(4)].

6. Under Section 4(h) of the Lotteries (Regulation) Act no lottery shall have more than one draw in a week. The Mizoram lottery introduced in the State of Kerala consists of different lotteries having draw from Monday to Sunday. That means, different sets of lotteries are organised for sale each day.

7. On 28/7/2017, the petitioners were served with a notice (Ext.P26) issued by the Deputy Commissioner of State Goods & Services Tax Department, Kerala, directing the petitioners to do the following, within 24 hours of receipt of notice:

“1. You are required to prove that the lottery to be held is in compliance of Section 3 4 of the Lotteries (Regulation) Act, 1998 along with other provisions of the said Act.

2. You are also required to furnish details as provided under Rule 56(19), 56(20) of the The Kerala Goods and Services Tax Rules, 2017.

3. You are also required to comply the conditions put forth in Rule (20A) of The Kerala Goods and Services Tax Rules, 2017.”

On the same day, the police came to the godown of the first petitioner and seized several goods including lottery tickets. An FIR was registered on 29.07.2017 by the Palakkad Kasaba Police. The petitioners allege that the Deputy Commissioner by colluding with the Police effected such seizure.

8. As seen from the pleadings, the Deputy Commissioner assumed that the lottery to be held was in violation of the Lotteries (Regulation) Act and Rules, and the petitioners having not complied with the formalities of certain provisions under the Rules cannot sell such lottery in the State. As seen from the challenge made to certain rules, which I shall advert in the later part of this judgment, the Deputy Commissioner appears to have moved against the petitioners based on the Rules to come to a conclusion that the lottery tickets stocked for sale were in violation of the Lotteries (Regulation) Act. The petitioners assailed the validity of such Rules under the Kerala State Goods and Services Tax Act along with other prayers in the writ petition. The petitioners also challenged notice issued by the Deputy Commissioner directing them to comply with the matters mentioned therein. This notice is Ext.P26. The dispute in this writ petition essentially rests on the validity of the rules and the power exercised by the Deputy Commissioner of Tax Department relatable to the Rules.

9. Apart from the challenge as above, the petitioners also have raised a contention that the officials under the Kerala State GST Act are not entitled to invoke the provisions of the Kerala State GST Act against the petitioners for sale of lotteries as the sale of lotteries is governed by Integrated Goods and Service Tax Act, 2017 (IGST Act) since the sale of lotteries by the supplier and the place of supply are in two different States. Therefore, it is argued that the State officials cannot take any action against the petitioners.

10. The State Government defended their action pointing out the irregularities detected. The State, particularly, pointed out that the notification was issued only on 24.7.2017 and it was published on 27.7.2017 and tickets were delivered to the distributor on 6.7.2017, to demonstrate illegality. It was also pointed out that the Mizoram State, by notification dated 2.8.2017 have decided to keep lottery to be marketed in the State on hold and thereafter, by notification dated 5.9.2017 [Ext.R11(g)], the Mizoram Government cancelled the lottery scheme introduced in the State of Kerala and therefore, there is no cause of action for the petitioners to approach this Court.

11. By referring to the various instances of violations, the State had taken a contention that the lottery scheme notified by the State of Mizoram and the sale of tickets in the State of Kerala would attract penal provisions of the Lotteries (Regulation) Act. The Government also suspect unauthorised tickets being sold without knowledge of the Mizoram State. It is pointed out Nos.80 lakhs of lottery tickets are printed for each draw and it is impossible to match the revenue generated from sale with the price offered. The State made an attempt to demonstrate that the revenue for sale has no match with gross price money. It is further pointed out that even by rough estimate it would go to show that the sale cannot be conducted without huge loss being suffered by the Mizoram State. It is also pointed out that supply of lottery was done by an officer of the Mizoram Government in the State of Kerala and supply was within Kerala and therefore, the transaction is intra-State Supply coming under the purview of Section 8 of IGST Act. It was further submitted that since the petitioners are having a case that transaction is covered by IGST Act, they do not have any cause of action to challenge action and rules under the Kerala State GST Act.

12. The petitioners though made several challenges in regard to the various rules, Kerala State GST Rules, at the time of argument they confined their challenge to Rules 56(19) and 56(20A). Rule 56(19) provides as follows:

“56(19) Notwithstanding anything contained in this Rules, every agent or distributor selling lottery tickets in the State, shall keep the following records relating to the lotteries sold/intended to be sold in the State with respect to each draw, such as,-

(a) Notification issued under Sub-Rule (3) and (4) of Rule 3 of the Lotteries (Regulation) Rules, 2010 with respect to the lottery and draw;

(b) Agreements or contract showing the valid appointment of distributors or selling agents by the organizing State, with respect to the lotteries sold by them;

(c) The number of the tickets received from the organizing State for sale;

(d) The tickets issued for sale;

(e) The tickets sold,

(f) Tickets which remain unsold at the time of the draw;

(g) Details of the prize winning tickets along with the amount of prize or prizes prizes in respect of each draw, name and address of winners;

(h) Proof of despatch and receipt of unsold tickets by the organizing State, in case the licensee is a distributor or selling agent;

(i) proof of payment of sale proceeds of the lottery to the organizing State or deposit in the Public Ledger Account of the organizing State in case the licensee is a distributor of selling agent;

and the same shall be produced for verification by any authority under this Ordinance.”

13. Rule 56(20A) reads as follows:

“Rule 56(2OA): Every agent or distributor selling lottery tickets or a selling agent of lotteries authorised by the State and who is registered under the Ordinance, shall file the information return in Annexure before the Deputy Commissioner of State Tax, Thiruvananthapuram, Deputy Commissioner of State Tax, Ernakulam or Deputy Commissioner of State Tax, Palakkad, as the case may be, regarding the lottery tickets supplied by them and the procedure to be adopted for verification as specified hereunder-

(i) He shall submit on the first day of every month and, if the first day being a holiday, on the immediate next working day, the Statement as provided in the ANNEXURE relating to the draws of lotteries to be conducted during the month commencing from the next succeeding month which are intended to be sold in the State;

(ii) The organizing State or their distributor or selling agent shall file the details regarding unsold ticket particulars and produce the unsold lottery tickets before the same authority who have verified while bringing the lottery tickets for sale in the State within forty eight hours after the lottery draw

(iii) The procedure of verification of information return is as specified below:

(a) The tickets for which the details in Annexures filed shall be produced before the Deputy Commissioner of State Tax, Thiruvananthapuram, Deputy Commissioner of State Tax, Ernakulam or Deputy Commissioner of State Tax, Palakkad, as the case may be, as and when it is received from the organizing State for verification;

(b) The physical verification of the details submitted in Annexure shall be done by the Deputy Commissioner of State Tax, Thiruvananthapuram, Deputy Commissioner of State Tax, Ernakulam or Deputy Commissioner of State Tax, Palakkad, as the case may be, during the actual retail sale of tickets;

(c) The physical verification of unsold tickets shall be done by the Deputy Commissioner of State Tax, Thiruvananthapuram, Deputy Commissioner of State Tax, Ernakulam or Deputy Commissioner of State Tax, Palakkad, as the case may be,

(d) Violations of the Lotteries (Regulation) Act, 1998 (Central Act 17 of 1998) and the Rules made there uner, if any, detected by any authority shall be informed to the police for initiating action under section 7 of the said Act and to the Government for initiating action under section 4 fo the said Act.”

14. The petitioners would contend that the Rules as above are ultra vires and liable to be struck down as unenforcible. According to the petitioners, these rules are made by encroaching upon power of the Union Government under Entry 40 of List I, Schedule VII of the Constitution. These rules, in fact, intend to prohibit sale of lottery in the State and not to sub-serve any purpose under the Kerala State GST Act. Therefore, these rules have been included as a colourable exercise of power and beyond the scope of Article 246-A of the Constitution.

15. The Government defended these Rules by contending that these rules were made for proper assessment of levy of GST. It was submitted that for fair and complete assessment of GST, these rules are necessary.

16. On application of IGST, this Court is called upon to decide whether there is an infraction on the right of the petitioners to carryout legitimate business in lottery of the State of Mizoram in the context of Ext.P26 issued by the Deputy Commissioner of State GST Department, Kerala. Though various arguments have been raised as to the power of the State Officials to proceed against the petitioners under the Kerala State GST Act, this Court cannot decide such issues without the same being considered by a primary authority which issued such notices. Merely because this court was addressed and called upon to decide certain issues, which primarily need to be considered by a primary authority, as the court’s jurisdiction on such matters can be exercised only by judicial review, the court must resist from pre-empting the primary authority deciding the matter after hearing the petitioners. Therefore, the question whether the petitioners’ activities would fall within the IGST regime or Kerala State GST regime will have to be addressed by the primary authority after hearing the petitioners. Therefore, this Court is of the view that the question whether IGST would apply as the transaction in question is inter-State transaction will have to be left open. The petitioners are free to submit to the jurisdiction of the Deputy Commissioner and raise objection. It is to be also noted that the petitioners challenge the Rules framed under the Kerala State GST Act. Therefore, the petitioners have no clear idea as to the regime that would apply to them. In such circumstances, this Court cannot consider the question whether IGST alone is applicable to the transaction.

17. The matter also require consideration as to the extent of using police power by the officials of the Government for interfering with the lottery business. A point also need to be examined whether the petitioners require to comply with all the directions in Ext.P26 for the purpose of carrying further business. A question also to be considered is whether the petitioners are having a live cause of action to challenge the actions of the respondents. The petitioners have challenged vires of certain provisions in the context of Ext.P26. Therefore, in such circumstances it is appropriate to proceed further after adverting to the cause of action of the petitioners to approach this Court:

18. Point i. –Whether cause of action is alive or not.

According to the learned Senior Counsel appearing for the Government, the petitioners’ main challenge is against a notice issued under the Kerala State GST dated 28.7.2017 and consideration of Ext.P26 would arise only if Mizoram Government had an intention to conduct sale of lottery in the State. The learned Senior Counsel particularly referred to the Ext.R11(g) produced along with the counter affidavit filed on behalf of the State of Mizoram and submits that the lottery introduced in the State was withdrawn with immediate effect. It is pointed out that this notification was published through Gazette. The learned Senior Counsel further pointed out that, the notification issued, cancelling that notification on 28.11.2017 cannot revive what was repealed. The learned counsel particulary referred Section 6(a) of the General Clauses Act and argued that repeal does not revive anything not in force or existing at the time of appeal and therefore, what was repealed on 5.9.2017 cannot be resurrected by another notification 28.11.2017.

19. It is to be noted that this court is not entering into validity of the notification issued but on the otherhand deciding an issue based on the right of petitioners which is threatened by Ext.P26.

20. The Senior Counsel appearing for Mizoram Government reiterated that the Mizoram Government want to sell the lotteries in this State. The Mizoram Government also issued notification cancelling earlier notification.

21. The argument raised by the learned Senior Counsel for the Mizoram Government that what was repealed cannot be revived by cancelling earlier notification withdrawing the introduction of lottery in the State will not hold good. If the Government is having the power to withdraw the notification, it also has the power to cancel such decision. That power is traceable under Section 21 of the General Clauses Act, 1897. Further, it is also open for the Mizoram Government to issue a fresh notification, if so warranted. Considering the stand of the Mizoram Government that they want to sell the lottery tickets in Kerala, the question on the cause of action also has to be considered based on Ext.P26 as well. That question is whether Ext.P26 poses any threat to the petitioners from selling the ticket in the State or not. According to this Court, an examination of the matter is required in the light of threatened action against the petitioners as referred under Ext.P26. It may be appropriate to mention that, in the notice itself the petitioners were directed not to proceed further until compliance with statutory provisions. Therefore, this Court need to examine whether the petitioners need to comply with the direction in Ext.P26 or not. This Court hold that the cause of action is alive and writ petition needs consideration.

22. Point No.ii.– On challenges in regard to vires of the Rules:

The petitioners challenge vires of the Rules as well. The main challenge is in regard to sub rule (g) and (i) to Rule 56(19) and also to sub rule (d) of Rule 56(20A) of the Kerala State GST Rules.

This Court propose to deal with sub rule (d) of Rule 56(20A) while considering the issue of exercise of police power. The petitioners’ challenge Rule 56(19)(g) & (i) on the ground that the petitioners cannot be directed to maintain such records as those matters are to be maintained by the Organizing State. Any vires of the Rules can be challenged only on certain grounds, such as, if the Rules are repugnant to the Parent Statute, the Rules are beyond the power of the Rule making authority, the Rules are an excessive delegation of power, the Rules are in the nature of essential legislative power etc. The practical difficulty therefore, is a matter of explanation before the authority to whom such compliance is required to be reported. Therefore, challenge on this ground must fail.

23. Point iii.–Whether the Government is justified using police power to interfere with the lottery business in the State through the officials under the Tax Department.

The petitioners challenge Rule 56(20A)(d) of the Kerala State GST Rules. The petitioners’ case is that Lotteries (Regulation) Act is a self contained Act and the Parliament alone is competent to legislate in respect of the offences for violation of Lotteries (Regulation) Act. The police power referred under Section 7 of Lotteries (Regulation) Act therefore, can be exercised only in accordance with the provisions under the Lotteries (Regulation) Act and the State has no power to legislate on such subject on which the Parliament alone has the power to legislate. It is pointed out that self assumed satisfaction of violations by the officials of the Department of Tax can in no way result in initiating action against the petitioners under the Lotteries (Regulation) Act.

24. It is to be noted that Rule 56(20A)(d) refers to satisfaction entered by the authority as to the violations of the Lotteries (Regulation) Act. This Court is of the view that the above Rule has to be struck down as the State has no power to constitute one more authority under the Kerala State GST Rules to enter satisfaction as to the violations of the lottery. The Indian Constitution do not recognise police power as such. Therefore, the police power depend upon source of power to legislate. In Synthetics & Chemicals Ltd. v. State of U.P. And others [AIR 1990 SC 1927] the Hon’ble Supreme Court categorically held that concept of police power was not accepted in India as an independent power but was recognised as a part of the power of the State Legislature with respect to the matters enumerated in the State and Concurrent List subject to constitutional limitation. Therefore, the State would have the power depend upon the competency to legislate on the subject. Since lottery subject falls exclusively in the domain of the Parliament, the State cannot confer such power on any authority under the Kerala State GST to enter a satisfaction as to the violations of the Lotteries (Regulation) Act. Therefore, the above rule has to be struck down.

25. Lotteries (Regulation) Act deals with the manner in which violation of lottery will have to be dealt with. Section 8 of the Lotteries (Regulation) Act states that the offences under the said Act shall be cognizable and non bailable. Therefore, the police will have to enter a satisfaction as to the violation before proceeding against the offenders. The police cannot act merely based on the information given by the Tax officials. The police power in relation to the violation of the provisions of Lotteries Regulation can be exercised only in accordance with the Lotteries Regulation. The State’s competency to legislate on the subject under the head ‘Betting and Gambling’ in Entry 34 of List II, Schedule VII of the Constitution cannot empower the police officials or the tax officials to declare the lottery organised by the State of Mizoram as illegal and to interfere with such business of the petitioners. In H.Anraj and others v. State of Maharashtra [(1984) 2 SCC 292] the Hon’ble Supreme Court had taken a view that the State Legislature is not empowered to legislate to interfere ban on sale of lottery tickets of other states stating that such lottery are sold not in conformity with Lotteries (Regulation) Act. Therefore, by executive action or by legislative action, sale of other State lotteries cannot be interfered by the State except in accordance with the Lotteries (Regulation) Act.

26. Point No.IV.–On scope of interference by the Tax officials of the Government invoking provisions of the Kerala State GST Act. The petitioners challenge Ext.P26, particularly referring to the stipulations mentioned therein for compliance of certain statutory provisions. The Court has to decide what is the scope of public law remedy in the context of challenge made by the petitioners. It is apparent that the petitioners apprehend the registration granted to them under the Kerala State GST Act will be cancelled, if the petitioners fail to comply with such demand as made in Ext.P6. It is particularly to be noted that the petitioners were prevented from proceeding further until compliance as demanded in Ext.P26 is ensured. In regard to the first direction that the petitioners should prove that lottery to be held is in compliance with Section 3 & 4 of the Lotteries (Regulation) Act is beyond the authority of the Deputy Commissioner. The State is apparently making such demand based on its past experience with the State of Sikkim Lottery. The State highlighted that Sikkim Lottery showed the sale of 96 crores in a year as against actual sale of 3500 crores. It appears that the State Government moved the Central Government and the Central Government passed an order under Section 6 of Lotteries (Regulation) Act prohibiting such lottery. In a federal set up, one State cannot frown upon and decide the legitimacy of lottery of other State. Federalism works on mutual co-operation. If there is any violation of Lotteries (Regulation) Act, the State in fact, is raising a complaint against other State. Therefore, such complaint can be dealt only by the Central Government and not by the State itself. The State Government or its officials are not the authority to decide that lottery conducted by other State is not in compliance with the Lotteries (Regulation) Act. The challenge to other provisions will have to be considered in the light of the directions given in Ext.P26. The petitioners were restrained from proceeding further without furnishing details as provided under Rule 56(19), 56(20) and 56(20A) of the Kerala State GST Rules, 2017.

27. The point to be considered is whether the petitioners are required to comply with other directions in Ext.P26 for proceeding with the business in lottery. The Rules are not intended to regulate the activities of lottery and it cannot also be so. The Rules cannot be interpreted in such a way to regulate the sale of lottery. If the Rules accorded interpretation to regulate lottery, certainly, it will amount to encroachment of the power of the Parliament to legislate. The Rules thus, can be interpreted only in such a way to sub serve its object under the GST Act and Rules. It is nothing but determination and collection of tax. Chapter VIII of Kerala State GST Act refers to maintenance of accounts and other records. Chapter IX refers to returns. The very purpose of these provisions is to ensure a complete assessment, as required under Chapter XII. The powers conferred upon the officials under Chapter XIV for inspection, search, seizure and arrest is to detect and prevent evasion of tax under the Kerala State GST Act. The Rules insisted to be complied will have to be interpreted keeping in mind the purpose for which it were formulated. Chapter VII of Kerala State GST Rules refers to maintenance of accounts by registered persons. Rules as above are framed under Chapter VII under the head “Accounts and Records”. The Rules refers to the maintenance of records by a registered person. Thus, it can be seen that rules are framed for a fair and complete assessment of the goods or services provided by the assessee. In regard to Rule 56(19) of the Kerala State GST Rules, in the writ petition itself, the petitioners expressed their willingness to comply the rules in a manner referred therein except to Rule 56(19)(g) & (i). The petitioners also challenge sub Rule 20A to Rule 56 and annexure to the above sub rule. The petitioners point out that in the annexure to sub rule 20A of Rule 56, they have been asked to maintain records regarding percentage of distribution of face value for price and commission, tax administration expenses etc.

28. Chapter VII of the Kerala State GST Rules only refers about maintenance of accounts by registered persons. The very object of such records is to complete assessment. The petitioners can highlight practical difficulties in keeping such records. For example, the petitioners highlight their grievances in relation to sub rule 19(g) & (i) to Rule 56. The petitioners gave explanation as follows in regard to their inability to maintain records for such requirement:

29. It is to be noted that under Rule 3(16) of Lotteries (Regulation) Rules, the Organizing State shall keep the records of the tickets printed, tickets issued for sale, tickets sold, tickets which remain unsold at the time of the draw, and the prize winning tickets along with the amount of prize or prizes in respect of each draw, in the manner prescribed by the Organizing State. It is also the duty of the Organizing State to ensure that the proceeds of the sale of lottery tickets, as received from the distributors or selling agents or any other source, are deposited in the Public Ledger Account or in the Consolidated Fund of the Organizing State. [See Rule 3(17)].

30. In regard to Rule 56(20A) of the Kerala State GST Rules, the petitioners also explained the manner in which the provisions can be complied. This Court, in fact, has already taken a view that 56(20A)(iii)(d) is beyond the rule making power of the Government under Kerala State GST regime. The petitioners gave an explanation as to the manner in which they can comply with other aspects covered by Rule 56(20A). The petitioners pointed out the practical difficulty in complying Rule 56(20A)(II) within 48 hours. Explanation as above, certainly, is meritorious. The Court cannot brush aside such an explanation. How far an action can be initiated for non compliance is a vexing question to be decided by this Court. The petitioners also challenge Annexure under sub rule 20A of Rule 56 to the extend the petitioners were directed to maintain records showing the percentage of distribution of face value for price and commission, tax, administration expenses etc.

31. Relevant Rules are challenged under the threatened action initiated under Ext.P26. The power is conferred on officials to seize goods articles if evasion of tax is suspected. The exercise of this power is a point to be considered as a consequence of non compliance. This Court, in fact, is considering this issue when the petitioners’ activities have come to a halt consequent upon Ext.P26. The State also insisted that the petitioners need to maintain such records for carrying out the activities of sale of lotteries. In those circumstances, this Court has to decide the scope of interference for non compliance of maintaining records. Non compliance would not amount to contravention unless there is breach. Every non compliance is not a breach. There must be a breach that is to say, violation of legal obligation. If rules itself are determinative of such violation, no doubt an action can be initiated on noting such violation. If such Rules postulate an enquiry, no action can be initiated without holding an enquiry. In such cases, breach would come into existence only after the enquiry. The petitioners have explained reasons for their inability to maintain such records. These Rules in fact, are Rules for completing assessments if the petitioners are having valid reasons for not maintaining the records, that cannot even result in taking penal action against them. This Court therefore, is of the view that non compliance of maintaining records as referred in sub rule 19(g) & (i) of Rule 56 of the Kerala State GST Rules can be subject matter of enquiry in assessment proceedings or in other proceedings and cannot be a reason to prevent the petitioners from engaging sale of lotteries in the State. The petitioners also cannot be prevented from engaging in the sale of lottery for not furnishing details regarding unsold ticket particulars within 48 hours. Explanation of the petitioners in each of such occasions will have to be considered by the officials. Similarly, the petitioners also cannot be directed to file information in return to Annexure in regard to the percentage of commission they receive. The petitioners are having every right to withhold such information. No action can be initiated for non furnishing of such details regarding percentage of commission received. Percentage of commission has no nexus to the levy of tax to be collected from the petitioners.

32. As already adverted, compliance and non compliance of the Rules in the context have been considered when the petitioners are prevented from engaging in activities. The very object of such Rules is for proper assessment. Violation of Rules would depend upon satisfaction to be arrived in enquiry as to the compliance and non compliance. Rules adverted as above cannot be insisted as a pre condition to sell lottery tickets in the State. Therefore, compliance and non compliance would depend upon outcome of such enquiry. Rules as above are itself not determinative of violation. Such violation can be found out only after enquiry. Therefore, this Court is of the view that the petitioners should not be prevented from the sale of lottery for non compliance of Rules 56(19) and 56(20A) of the Kerala State GST Rules, in respect of which they have explained their practical difficulty in complying the same. In respect of the other Rules, the petitioners having expressed their willingness to comply the same in the writ petition itself, I need not advert to the consequence and non compliance of such Rules.

33. Point No.V.–On validity of Ext.P26. In the light of the discussions as above, Ext.P26 will have to be interfered with. Compliance and non compliance of Rules 56(19) and 56(20A) would depend upon the satisfaction to be arrived in appropriate enquiry in assessment or in other proceedings.

34. Therefore, the writ petition is disposed with the following directions:

(I) Rule 56(20A)(iii)(d) of the Kerala State GST Rules is struck down holding that the State has no legislative competence to formulate such Rule.

(II) The challenge to the vires of other Rules is negatived.

(III) It is declared that the officials under the Tax Department have no power to enter into satisfaction as to whether the lottery was conducted in compliance with the Lotteries (Regulation) Act or not.

(IV) Ext.P26 is quashed to the extent forbearing the petitioners from proceeding further with the sale of lottery.

(V) If the petitioners raise an objection before the Deputy Commissioner of State Goods & Services Tax Department, Kerala, questioning the jurisdiction of the officials under the Kerala State GST Act and Rules, that question shall be considered within one month after affording an opportunity of hearing.