Karnataka High Court Strikes Down GST Rules Imposing Liability On Entire Bet Amount Received By Horse Race Clubs

The Karnataka High Court has declared Rule 31A(3) of the Central Goods and Services Tax Rules, 2017 as amended in terms of notification dated 23.01.2018 as ultra vires the provisions of the Central Goods and Services Tax Act, 2017 Act and Rule 31A of the Karnataka Goods and Services Tax Rules, 2017, as ultra vires the provisions of the Karnataka Goods and Services Tax Act, 2017. Allowing the petitions filed by the Bangalore Turf Club Limited and Mysore Race Club Limited the court said “The petitioners shall be entitled to all consequential benefits that flow from the aforesaid orders.” The petitioners had primarily moved the court challenging 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. It was contended that the two petitioners particularly conduct horse racing and facilitate betting by the punters. By themselves do not bet, but only facilitates punters in their betting activity. It is the punter who places the bet either with a totalisator run by the petitioners or a book-maker licensed by the petitioners. If a horse backed by the punter wins, the winning punter is required to surrender the receipt and receive the winning amount. It means, a losing punter’s money is used to pay the prize money of the winning punter. The prize money is distributed by the petitioners to the winning punter and out of the amount commission is set apart to be taken by the petitioners. Further, it was said “after the CGST regime began, an amendment was brought into Rule 31A by insertion of Rule 31A(3) to the CGST Rules. The amendment made GST payable by the petitioners on the amount of bet that gets into the totalisator.”