2021-TIOL-1271-HC-KAR-GST
Bangalore Turf Club Ltd Vs State Of Karnataka
GST - Writ petitions inter alia challenge the legislative intent of making the petitioners liable to pay Goods and Services Tax 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.
Facts:
+ The petitioners are carrying on the business of a race club, which includes lay-out and preparing any land for running of horse races, steeplechases of races of any other kind and for any kind of athletic sports. The petitioners particularly conduct horse racing and facilitates betting by the punters. The petitioners 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 price money of the winning punter. The price 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.
+ Up to 30th June 2017, the petitioners claim to have discharged payment of service tax on the commission so retained and the betting tax under the provisions of the Mysore Betting Tax Act, 1932. On and from 1st July 2017, the Mysore Betting Tax and the Service Tax provisions stood repealed and the Goods and Services Tax laws were brought into force.
+ 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. It is this amendment that is called in question by the petitioners in this writ petition on the ground that the Rule is made beyond the powers conferred under the CGST Act, which would render it to be ultra vires and has sought a consequential declaration that the CGST and KSGST be restricted only to the Commission that the petitioners get on holding the amount in the totalisator for a brief period.
Held:
Issues are -
(1) Whether Rule 31A(3) of the CGST Rules is ultra vires the CGST Act?
(2) Whether the petitioners are liable to pay GST on the commission set apart or on the total amount collected in the totalisator?
++ Article 265 of the Constitution mandates that no tax shall be levied or collected except by authority of law. The oft-quoted components of tax are a taxable event, a taxable person, rate of tax and measure of tax. All four components are inter-twined, with nexus being the soul of these components. A taxable event is an event which triggers tax; a taxable person is the one who is obliged to pay the tax; the rate of tax is the rate at which tax is determined/calculated; measure of tax is the value to which the rate is applied for computing a particular tax liability. [para 12]
++ Apex Court has clearly held that the measure to which the rate of tax is to be applied to a taxable person must have a nexus to the taxable event and not dehors it. [para 12]
++ In terms of Article 366(12A) Goods and Services tax would be any tax on supply of goods and services or both except taxes on the supply of alcoholic liquor for human consumption. [para 13]
++ In terms of the amendment to the Rule 31, the Government of India made value of supply of actionable claim in the form of chance to win in betting gambling or horse racing in a race club to be 100 per cent of the face value of the bet or the amount paid in to totalisator. Therefore, by this amendment, the entire amount that is paid into the totalisator is made subject to the CGST. It is this amendment which inserted 31A(3) that has triggered this lis . [para 14]
++ Section 2 of the Act defines various terms under the Act. Section 2(1) deals with an actionable claim. Actionable claim is not defined under the Act but is directed to hold the same meaning as assigned to it in Section 3 of the Transfer of Property Act, 1882. Section 2(17) defines what is business. Section 2(17)(h) defines activities of a race club including by way of totalisator or a license to a bookmaker or activities of a licensed book maker in such race club to be business. Section 2(31) deals with what is consideration which is any payment made whether in money or otherwise in respect of or in response to or for an inducement of goods or services or both. Section 2(52) deals with goods which would mean every kind of movable property other than money and securities including actionable claim. Section 2(93) deals with recipient. A recipient is one who receives goods or services or both. Section 2(105) defines who is a supplier. A supplier in relation to any goods or services both to mean a person who is supplying the said goods or services or both. The spirit of the afore- quoted definitions is that there must be goods and there must be supply which would only become a taxable event. If there is no supply; there is no tax. [para 15]
++ In terms of the Section 7, the expression 'supply' is inclusive of goods or services or both. Therefore, there should be supply of goods or services. Sub-section (3) of Section 7 clearly defines the transactions that are treated as goods. Sub-section (2) of Section 7 (supra) mandates that notwithstanding anything contained in sub-section (1) 'activities' or 'transactions' specified in Schedule-III would be neither treated as 'goods' or 'supply'. [para 16]
++ Rule 31A(3) which is under challenge states that value of supply of actionable claim in the form of a 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. Therefore, it becomes necessary to consider the purpose of Rule 31A(3) qua the Act and the components of tax. Section 9 of the Act which deals with levy and collection indicating clearly that goods and services tax on all intra-State supply of goods and services on the value determined under Section 15 at a particular percentage as may be notified by Government to be connected in such a manner as may be prescribed and is to be paid by the taxable person. [para 18]
++ Section 9 has a four-fold requirement for any taxable person to pay tax. The tax is only on the supply of goods and services; on a value determined under Section 15 of the Act which deals with value of taxable supply; the rate not exceeding 20% which is a tax rate and to be paid by a taxable person who is the person obliged to pay tax. The nexus, therefore, between the measure of tax and the taxable event even under Rule 31A(3) can at best be supply of a totalisator service. Rule 31A(3) in the form that it is, perforates the nexus between the measure of tax and the taxable event as the fully paid value into the totalisator is directed to be assessed for payment of GST under the Act. Therefore it becomes necessary to consider Rule 31A(3) qua the activity of the petitioners and that becomes kernel of the entire issue. [para 19]
++ The activity of the petitioners is required to be noticed to consider whether the petitioners are liable to pay tax on 100 per cent of the face value of the bet or only on the commission that it receives out of the amount received in the totalisator. [para 20]
++ The Government has used the word 'totalisator'. Therefore, it becomes necessary to consider what is a 'totalisator'. The word 'totalisator' ordinarily means a system of betting on horse races in which the aggregate stake, less an administration charge and tax, is paid out to winners in proportion to their stakes. This software installed will have number of terminals handled by the staff of the petitioners. The totalisator keeps a record of the amount punted by the punter, automatically retains certain percentage towards commission of the petitioners and taxes thereon. It even depicts the amount collected in the totalisator which would be available for distribution among the winner who placed his stake. A punter who wishes to bet pays certain amount of money through these terminals for backing a particular horse. A receipt is issued representing the monies put in by the punter on the horse that he has backed. There ends the work performed by the petitioners through the 'totalisator'. [para 21]
++ 'Totalisator' has been interpreted by English Courts and the Apex Court to mean a fixed commission which is earned irrespective of the outcome of the race and cannot be seen to be indulging in a betting activity. [para 22]
++ Section 7 of the Act deals with supply. All forms of supply of goods or services or both for a consideration in course of furtherance of business means a supply. A supplier under Section 2 (105) is in relation to any goods or services or both and shall mean that the person supplying goods or services or both. In terms of Section 7 the taxable event is supply i.e., supply of goods for consideration and in course of furtherance of business. All three events must concur for a taxable event to occur. This has to be read with Section 2(17) which deals with 'business'. Clause (h) thereof includes activities of a race club by way of totalisator or a license to book maker in such club. The emphasis is on the course of business of a totalisator. [para 24]
++ What is the function performed by the totalisator has been considered by the Apex Court in the judgments referred to. Therefore, a totalisator does not indulge in betting. In my opinion, betting is neither in the course of business nor in furtherance of business of a race club for the purposes of the Act. As stated hereinabove, petitioners hold the amount received in the totalisator for a brief period in its fiduciary capacity. Once the race is over the money is distributed to the winners of the stake. It is for a certain period between input of money by the participants and the output of money to the winners of stake during the race the petitioners hold that money in its fiduciary capacity for which the consideration that the petitioners receive is the commission. Rule 31A(3) completely wipesout the distinction between the bookmakers and a totalisator by making the petitioners liable to pay tax on 100% of the bet value. It is the bookmakers who indulge in betting and receiving consideration depending on the outcome of the race, irrespective of the result. In contrast, the race club provides totalisator service and receives commission for providing such service. Therefore, there is no supply of goods/bets by the petitioners as defined under the Act. [para 25]
++ The consideration that the petitioners receive for supply of service of the totalisator is only the commission. Therefore, the consideration component of supply is also not specified by the impugned Rule which directs payment of tax on the whole bet amount. The commission is only the consideration received by the race club on the transaction. The commission so received by the petitioners is not in respect of or in response to an inducement of supply of betting transaction. Betting transaction is carried out by the book maker who receives the consideration irrespective of result of the race. Thus, the totalisator holds money in trust on behalf of the punter before redistribution to the winner of stake which cannot be construed to be a consideration in terms of Section 2(31) of the Act. [para 26]
++ Section 2(105) (supra) defines 'supply' who is a person supplying goods or services or both. Section 2 (107) means a taxable person who is liable to pay tax. One who supplies the goods is liable to pay tax. The impugned Rule make the petitioners a 'supplier' of bets which the petitioners do not and are not the supplier of bets and therefore, cannot be held liable to pay tax under the Act, as the service or supply that the petitioners do is only a totalisator component. The petitioners do not supply bets to the punters. [para 27]
++ In terms of what is stated on oath (by the Government), it is the punter who places his bet through the totalisator operated by the petitioners. What is retained by the petitioners is the commission and the balance amount collected by the totalisator is distributed among the winners based on the winning horse and bet amount. The categorical statement made in the objections is that effectively, irrespective of the result of the race, petitioners receive consideration in the form of commission. This is exactly the submission of the petitioners that they are liable to pay tax under the Act for the commission that they receive and not for the entire amount that passes through the totalisator which is meant for distribution amongst the winners. Thus, on the very understanding of the Government, inter alia the action impugned, is rendered unsustainable. [para 28]
++ In the case at hand, the amount that gets into the totalisator is not the prior determined face value of the entire bet, which is before the beginning of the race and exit of it from the totalisator after the race is over by paying the money to its last pie to the winner of the stake can neither be construed to be business, consideration, goods or supply as defined under the Act, as the amount that lies in the totalisator is only for a brief period which is held by the petitioners/Race Club in its fiduciary capacity. All that the petitioners would become liable for payment of tax under the Act is the commission that it receives for rendering service of holding the bet in the totalisator for a brief period in a fiduciary capacity. Though the Apex Court has considered what is actionable claim qua sale of a lottery ticket that would be inapplicable to the case at hand as the challenge before the Apex Court and the answer was on a different facts and circumstances. Therefore, the supply of an actionable claim as indicated in the Rule cannot include the entire amount brought into the totalisator. [para 33]
++ The entire lis revolves around the fact whether Rule 31A(3) runs counter to the provisions of the Act with particular reference to sub-section (2) of Section 7. Sub-section (2) of Section 7 declares actionable claims to be neither goods or services except lottery, betting and gambling. Rule 31A(3) which came into effect from 23.01.2018 inserted Rule 31A(3) to depict value of supply in case of lottery, betting, gambling and horse racing. Sub- rule (3) declare 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 at 100% face value of the bet or the amount paid into the totalisator. Therefore, 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 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. Therefore, Rule 31A(3) insofar as it declares that the value of actionable claim in the form of chance to win in a horse race of a race club to be 100% of the face value of the bet is beyond the scope of the Act. This is also, inter alia , in the light of the fact that the activity of the petitioners being a game of skill and not a game of chance as is held by the Apex Court in the case of K.R.Lakshmanan ([(1996) 2 SCC 226]). [para 34]
++ In terms of the afore-extracted judgment of the Apex Court [in CELLULAR OPERATORS[(1026) 7 SCC 703]], the provision has to conform to the statute under which the Rule is made and exceeding the limits of the authority conferred by the enabling Act is one of those circumstances where the Rule could be struck down. Article 246A which introduced Goods and Services Act, 2017, the definitions and other provisions of the Act do not bring in the activity of the petitioners under the ambit of the Act. Rule 31A(3) travels beyond what is conferred upon the Rule making authority under Section 9 which is the charging section, by way of an amendment to the Rule. 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 same follows to the impugned KSGST Rules which are identical to the impugned CGST Rules. Therefore, Rule 31A(3) which does not conform to the provisions of the Act will have to be held ultra vires the enabling Act and consequently opens itself for being struck down. In view of the preceding analysis, Bench answer the issues that arose for its consideration in favour of the petitioners striking down Rule 31A(3) of the CGST Rules and Rule 31A of the KSGST Rules as being contrary to the CGST Act and hold that the petitioners are liable for payment of GST on the commission that they receive for the service that they render through the totalisator and not on the total amount collected in the totalisator. [para 35]
Conclusions:
(i) Writ Petitions are allowed.
(ii) Rule 31A(3) of the Central Goods and Services Tax Rules, 2017 as amended in terms of notification dated 23.01.2018 is declared as ultra vires the provisions of the Central Goods and Services Tax Act, 2017 Act and resultantly quashed only insofar as it concerns the petitioners.
(iii) Consequently, Rule 31A of the Karnataka Goods and Services Tax Rules, 2017 is declared as ultra vires the provisions of the Karnataka Goods and Services Tax Act, 2017 and resultantly quashed insofar as it concerns the petitioners.
(iv) Sequentially, the clarification/Circular No. 27/01/2018-GST dated 4.1.2018 is also quashed insofar as it concerns the petitioners.
(v) The petitioners shall be entitled to all consequential benefits.
- Petitions allowed: KARNATAKA HIGH COURT
2021-TIOL-1269-HC-TRIPURA-GST
Sentu Dey Vs State Of Tripura
GST - Petitioner has challenged an order dated 02.01.2021 passed by the Judicial Magistrate, 1st Class, Bishalgarh under which he has sent a criminal case CR 03 of 2020 for investigation under Section 156(3) of Criminal Procedure Code to the concerned Police Station - On 27.11.2020, Superintendent of State Taxes, Bishalgarh , filed a complaint before the Sub-Divisional Magistrate, Bishalgarh under Section 190 read with Section 200 of Cr.P.C - Complainant alleged that the petitioner has under declared the outward taxable turnover and accordingly, paid less tax than he was liable to pay for the period starting from August, 2017 onwards - It is further stated that sizable demand of Rs.19.74 Crores inclusive of tax, interest and penalty has been raised against the petitioner out of which only an amount of Rs.1.18 Crores could be recovered; that remaining amount of Rs.18.55 Crores still remains unpaid; that Notices were issued to the purchasing dealers of the petitioner, who conveyed to the department that they had already paid their taxes to the petitioner for the purchases made by them from the petitioner - The complainant, therefore, alleged that the petitioner though had collected the taxes from the purchasing dealers, had not deposited the same in the Government revenue - The petitioner had thus committed offences punishable under Sections 132 of the SGST Act and 406 and 409 of IPC - The request, therefore, was made to the Magistrate to take cognizance of the said offences - On 24.11.2020, the Sub-Divisional Magistrate, Bishalgarh ordered that the complaint may be registered as a CR Case and be transferred to the Court of JMFC, Bishalgarh - Accordingly, on 27.11.2020, the said complaint was registered as CR 03 of 2020 and was placed before the Judicial Magistrate, 1st Class, Bishalgarh , who passed the impugned order and by which the Magistrate sent the case for investigation after registering the complaint as an FIR and called for a report.
Held: It is well settled that the stage of examination of witness under Section 200 of Cr.P.C . would not arise before taking cognizance by the Magistrate - Thus, these two twin facts namely, the perusal of the case record by the Magistrate and the decision that he arrived on upon perusal of the case records of examining the witnesses under Section 200 of Cr.P.C . would leave no manner of doubt that on 27.11.2020 itself he had taken cognizance of the offences - It was thereafter not open for him to change the course and revert back to the initial option of requiring police investigation and calling for police report - Unfortunately, on 02.01.2021 this is precisely what he did - In the said order, he has recorded that after hearing the P.P. and after perusal of the complaint, he was of the opinion that before taking cognizance, the matter may be investigated by the police - In the process, the Magistrate lost sight of the fact that the stage of taking cognizance had already been crossed on 27.11.2020 itself - In the result, the impugned order dated 02.01.2021 is quashed - However, this does not put an end to the complaint lodged before the concerned Magistrate, who shall proceed further in accordance with the law from the stage of taking cognizance of the offences disclosed - Petition disposed of: High Court [para 28, 29, 30]
- Petition disposed of: TRIPURA HIGH COURT |
