In a major tax relief to turf clubs, the High Court of Karnataka has declared that the clubs are liable to pay GST only on the commission that they receive for the service that they render through the totalisator.
The Court said that the clubs are not liable to pay GST on the entire face value of the bet or amount paid into the totalisator while striking down Rule 31A(3) of the Central GST Rules, 2017 and the corresponding Rule 31A of the Karnataka GST Rules, 2017.
Justice M Nagaprasanna delivered the verdict on June 2 while allowing the petitions filed in 2018 by the Bangalore Turf Club Ltd and the Mysore Race Club Ltd questioning the legality of these rules, which came into force with effect from January 23, 2018.
The Court said the 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, the Court said, which deals with supply of goods, consideration, business “would not apply to the function of the totalisator.”
‘Like stock broker’
“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 Court said. “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,” said the Court.
Stating that 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.
While pointing out that “it is the bookmakers who indulge in betting and receiving consideration depending on the outcome of the race, irrespective of the result,” the Court made it clear that “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.”