State Of Karnataka Vs Bangalore Turf Club Limited
Date: August 12, 2021
Subject Matter
Turf clubs liable to pay GST only on the commission - Order Stayed
Summary
The petitioners in these writ petitions inter alia challenge the legislative intent of making the petitioners liable to pay Goods and Services Tax (‘GST’ for short) on the entire bet amount received by the totalisator and declare the amendments dated 25-01-2018 which inserted Rule 31A(3) to the CGST Rules as being ultra vires the CGST Act.
HELD BY HC (Single Judge):
The clubs are not liable to pay GST on the entire face value of the bet or amount paid into the totalisator . Rule 31A(3) of the Central GST Rules, 2017 is struck down. Rules are contrary to the provisions of the GST Act as “the totalisator is brought under a taxable event without it being so defined under the Act nor power being conferred in terms of the charging section, which renders the Rule being made beyond the provisions of the Act. The Act which deals with supply of goods, consideration, business “would not apply to the function of the totalisator. Making the entire bet amount that is received by the totalisator liable for payment of GST would take away the principle that a tax can be only on the basis of consideration even under the CGST. The consideration that the petitioners (turf clubs) receive is by way of commission for planting a totalisator. This can be nothing different from that of a stock broker or a travel agent - both of whom are liable to pay GST only on the income - commission that they earn and not on all the monies that pass through them. Betting is neither in the course of business nor in furtherance of business of a race club for the purposes of the GST Act, the Court said that clubs hold the amount received in the totalisator for a brief period in its fiduciary capacity, for which the consideration the clubs receive is the commission. It is the bookmakers who indulge in betting and receiving consideration depending on the outcome of the race, irrespective of the result. All that the petitioners would become liable for payment of tax under the Act is the commission that they receive for rendering service of holding the bet in the totalisator for a brief period in a fiduciary capacity.
The operation of the above impugned order is stayed till the next date of hearing by a 2 member bench.
The present writ appeal is arising out of the order dated 02.06.2021 passed in W.P.No.11168/2018.
Heard learned counsel for the parties on the question of admission.
The appeal is admitted for final hearing.
Learned counsel for the parties are also heard on the question of grant of interim relief.
The respondents before this Court have filed a petition challenging the constitutional validity of Rule 31A(3) of the CGST Rules, 2017 and the learned Single Judge has allowed the writ petition declaring Rule 31A(3) as ultra vires.
Rule 31(A) is reproduced as under:
31A:- Value of supply in case of lottery, betting, gambling and horse racing.-
(1) Notwithstanding anything contained in the provisions of this Chapter, the value in respect of supplies specified below shall be determined in the manner provided hereunder:
(2)(a) The value of supply of lottery run by State Government shall be deemed to be 100/112 of the face value of ticket or of the price as notified in the official gazette by the organizing State, whichever is higher.
(b) The value of supply of lottery authorized by State Government shall be deemed to be 100/128 of the face value of the ticket or of the price as notified in the official gazette by the organizing State, whichever is higher.
Explanation:- For the purposes of this sub-rule, the expressions –
(a) lottery run by State Governments means a lottery not allowed to be sold in any State other than the organizing State;
(b) lottery authorized by State Government means a lottery which is authorized to be sold in State(s) other than the organizing state also; and
(c) Organising State has the same meaning as assigned to it in clause (f) of sub-rule (1) of rule 2 of the Lotteries (Regulation) Rules, 2010.
(3) The value of supply of actionable claim in the form of chance to win in betting gambling or horse racing in a race club shall be 100% of the face value of the bet or the amount paid into the totalisator.
Learned Additional Advocate General along with Shri Vikram Huilgol, learned counsel has drawn the attention of this Court towards the judgment delivered in Skill Lotto Solutions Pvt. Ltd. vs. Union of India and Others reported in 2020 SCC Online SC 990.
This Court has also heard learned counsel for the respondents and is of the opinion that the appellants have been able to make out a prima facie case for grant of interim relief.
Resultantly, the operation of the impugned order shall remain stayed till the next date of hearing.