Kriti Agrawal –
The Karnataka High Court has ruled that turf clubs are only responsible for Good and Services Tax (GST) on the commission they earn for the service they provide through the totalisator. This is a significant tax break for turf clubs.
While striking down Rule 31-A-(3) of the Central GST Rules, 2017 and the analogous Rule 31-A of the Karnataka GST Rules, 2017, the Court stated that clubs are not obligated to pay GST on the entire 100% of the face value of the bet or money placed into the totalisator.
Justice M. Nagaprasanna gave the judgement on June 2 while accepting the petitions brought in 2018 by the Bangalore Turf Club Ltd and the Mysore Race Club Ltd disputing the legitimacy of these restrictions, which came into force from January 23, 2018.
The court said, the rules are in violation of the GST Act, the totalisator is placed within a taxable event without it being so defined under the act nor power being bestowed in terms of the charge section, which renders the rule being issued beyond the provisions of the act. The clubs are also entitled to all indirect gains resulting from the decision.
The court stated, “The statute, which deals with the supply of products, consideration, and commerce, would not apply to the function of the totalisator. Making the totalisator liable for GST on the full bet amount received would negate the concept that a tax can only be imposed on the basis of consideration, even under the CGST.”
Further, the Court said that the petitioners (turf clubs) are compensated in the form of a commission for the installation of a totalisator. This is no different than a stockbroker or a travel agency, who are only obligated to pay GST on the income commissions that they make, not on all the cash that flows through them.
The court said that betting is neither in the course of business or in furtherance of the business of a race club for the purposes of the GST Act and that clubs hold the money received in the totalisator in a fiduciary position for a short period of time, for which the clubs earn the commission.
