9911796707
TMI Blog2021 (6) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioners are as follows: The petitioners, are Companies incorporated under the Companies Act as a Public Limited Company 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. 3. 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. This is the broad modus of functioning of the petitioners as claimed by it. 4. Up to 30th June 2017 the petitioners claim to have discharged payment of service tax on the commission so reta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n all this, imposition of tax is contrary to law. (4) The impugned Rule 31A(3) is ultravires Section 7 of the CGST Act since the supply of bets is not in the course or furtherance of petitioners' business and is made liable to pay tax. The impugned Rule exceeds the mandate under Section 7 by levying GST on the amount that is not received by the petitioners as consideration. Respondents: 8. On the other hand, the learned Additional Government Advocate Sri Vikram Huligol representing the respondents would submit that the Act itself has mandated levying of tax on an actionable claim; What is actionable claim is not defined under the Act, it is in the Rules; Betting is also an actionable claim in terms of the Rules; the petitioners cannot contend that for the first time under Rule 31A the petitioners were made liable for payment of GST on the amount received through totalisator. 9. Since actionable claim is and was existing in the Act from the beginning the amendment has only clarified the role of the petitioners in the field of betting. Therefore, he would submit that the contention of the petitioners that Rule 31A is ultravires the Act and the amendment is to be rejected as a fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hose components are not clearly and definitely ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness in the legislative scheme defining any of those components of the levy will be fatal to its validity." This is further followed by the Apex Court in the case of MATHURAM AGGARWAL v. STATE OF MADHYA PRADESH [(1998) 8 SCC 667]., wherein it is held as follows: "12. Another question that arises for consideration in this connection is whether sub-section (1) of Section 127-A and the proviso to sub-section (2)(b) should be construed together and the annual letting values of all the buildings owned by a person to be taken together for determining the amount to be paid as tax in respect of each building. In our considered view this position cannot be accepted. The intention of the legislature in a taxation statute is to be gathered from the language of the provisions particularly where the language is plain and unambiguous. In a taxing Act it is not possible to assume any intention or governing purpose of the statute more than what is stated in the plain language. It is not the economic results sought to be obtained by making the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act, it falls foul with the legislative competence under Entry 54 of List II of Schedule VII so also notification - Annexure 3 to the extent it is intended to levy tax on first point sale with reference to price which could be charged in respect of a subsequent sale which has not come into existence at the time liability to tax arose and is determined ex hypothesi. However, the perusal of the language of Section 4-A and the notification issued thereunder by itself does not show that it applies only in case of sales to be taxed at first point. In case the levy is on the last point and the maximum retail price is to be fixed and published under any statute, whether instead of determining the price actually charged in each case fixed formula is provided by the enactment which has correlation with determining price by keeping in view the provisions of Section 9 of the Sale of Goods Act whether the provision still falls beyond the scope of Entry 54 has not been the subject-matter of contention. In this case and therefore, we have not been called upon to decide. In the absence of any contention having been raised, it will be hazardous to comment upon the validity of the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of CGST. Item No.34 of the said Notification reads as follows:- Sl.No Chapter, Section or Heading Description of Service Rate (per cent) Condition 34 Heading 9996 (Re-creational, cultural and sporting services) (i) Services by way of admission or access to circus, Indian classical dance including folk dance, theatrical performance, drama. 9 - (ii) Services by way of admission exhibition of cinematograph films where price of admission ticket is one hundred rupees or less 9 - (iii) Services by way of admission to entertainment events or access to amusement facilties including exhibition of cinematograph films, theme parks, water parks, joy rides, merry-go founds, go-carting, casinos, race-course, ballet, any sporting event such as Indian Premier League and the like 14 - (iv) Services provided by a race club by way of totalisator or a license to bookmaker in such club. 14 - (v) Gambling 14 (vi) Recreational, cultural and sporting services other than (i), (ii), (iii), (iv) and (v) 9 - After about a year of the promulgation of CGST Act, the Rules, Rule 31A was introduced by amendment to Rule 31 by a notification dated 23-01-2018, which reads as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness" includes- (h) services provided by a race club by way of totalisator or a licence to book maker in such club ; and Consideration as defined under the Act reads as follows: (31) "consideration" in relation to the supply of goods or services or both includes- (a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government; (b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government: Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply; Goods as defined under the Act reads as follows: (52) "goods" means every kind of movable property other than mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of the aforequoted 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. 16. Chapter-III of the Act deals with levy and collection of tax. Section 7 defines what is supply and reads as follows:- "7. Scope of supply. - (1) For the purposes of this Act, the expression "supply" includes- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (b) import of services for a consideration whether or not in the course or furtherance of business; (c) the activities specified in Schedule I, made or agreed to be made without a consideration; and (1A) Where certain activities or transactions constitute a supply in accordance with the provisions of sub-section (1), they shall be treated either as supply of goods or supply of services as referred to in Schedule-II (2) Notwithstanding anything contained in sub-section (1),- (a) activities or transactions specified in Schedule III; or (b) such activities or transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. (a) Supply warehoused goods to any person before clearance for home consumption; (b) Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods, after the goods have been dispatched from the port of origin located outside India but before clearance for home consumption. Explanation-1.-For the purposes of paragraph 2, the term "court" includes District Court, High Court and Supreme Court. Explanation-2. - For the purposes of paragraph 8, the expression "warehoused goods" shall have the same meaning as assigned to it in the Customs Act, 1962 (52 of 1962)." (emphasis supplied) Clause (6) of Schedule-III deals with actionable claim. The claim of items in Schedule III is treated neither as supply of good nor supply of services. The exception is exclusion of lottery, betting and gambling. 17. The charging section in the Act is Section 9, which reads as follows: "9:- Levy and collection. - (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore it becomes necessary to consider Rule 31A(3) qua the activity of the petitioners and that becomes kernel of the entire issue. 20. 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. 21. 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 backi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. We may at this stage notice the manner in which the Club operates and conducts the horse-races. Race meetings are held in the Club - racecourses at Madras and Ooty for which the bets are made inside the racecourse premises. Admission to the racecourse is by tickets (entrance fee) prescribed by the Club. Separate entrance fee is prescribed for the first enclosure and the second enclosure. About 1½ of the entrance fee represents the entertainment tax payable to the Commercial Tax Department of the State Government. The balance goes to the Club's account. Betting on the horses, participating in the races, may be made either at the Club's totalizators (the totes) by purchasing tickets of Rs. 5 denomination or with the bookmakers (bookies) who are licensed by the Club and operate within the first enclosure. The totalizator is an electronically operated device which pools all the bets and after deducting betting tax and the Club charges, works out a dividend to be paid out as winnings to those who have backed the successful horses in the race. Bookmakers, on the other hand, operate on their own account by directly entering into contracts with the individual punters who come to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Gaming Act, there is no 'wagering' or 'betting' by a punter with the Club. According to him, a punter bets or wagers with the totalizator or the bookmaker and not with the Club. It is not necessary for us to go into this question. Even if there is wagering or betting with the Club it is on a game of mere skill and as such it would not be 'gaming' under the two Acts." ... ... ... ... 44. The main object for which the Club was established is to carry on the business of race-club, in particular the running of horseraces, steeplechases or races of any other kind and for any kind of athletic sports and for playing their own games of cricket, bowls, golf, lawn tennis, polo or any other kind of games or amusement, recreation, sport or entertainment etc. In the earlier part of this judgment, we have noticed the working of the Club which shows that apart from 5% commission from the totalizator and the bookmakers no part of the betting-money comes to the Club. The Club does not own or control any material resources of the community which are to be distributed in terms of Article 39(b) of the Constitution of India. There are two aspects of the functioning of the Cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act are concerned with the objectives contained in Article 39(b) and (c) of the Constitution. We, therefore, hold that the protection under Article 31-C of the Constitution cannot be extended to the 1986 Act." (emphasis applied) Later, the Apex Court considering the activities of the petitioner in its judgment in the case of BANGALORE TURF CLUB LIMITED v. REGIONAL DIRECTOR, EMPLOYEES' STATE INSURANCE CORPORATION [(2014) 9 SCC 657]has held as follows:- "45. Further, the said race clubs also provide the viewers with the facilities to indulge in betting activities, which may even be said to be an integral part of the sport. The race clubs further even charge a fixed commission on the said betting. "Commission" in common parlance has duly been understood to mean a fixed charge payable to an agent or a broker for providing services for facilitating a transaction". (emphasis supplied) Therefore, the game of racing as held by the Apex Court following the law of Queen's Bench is that it is a game of skill. The Apex Court also observes in the case of Dr.K.R. Lakshmanan (supra) that the club earns nothing but a commission which at that point in time was 5%. 24. Section 7 of the Act d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de any subsidy given by the Central Government or a State Government; (b) the monetary value of any act or forbearance, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government: Provided that a deposit given in respect of the supply of goods or services or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply; Here again, consideration received is for the supply of goods or service or both. 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 rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioners 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. 29. Notwithstanding the afore- made statement on oath, the Union and the State, in unison, advance arguments based upon Schedule-III to Section 7. The learned counsel lay emphasis on clause (6) of Schedule-III. The said clause reads as follows: "6. Actionable claims, other than lottery, betting and gambling." The said clause of the schedule to the Act excludes actionable claims concerning lottery, betting and gambling. The contention is that actionable claim concerning these three activities is held to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of paper or memoranda merely evidencing the right to claim a prize by chance and whether these are actionable claims and hence excluded from the concept of goods, would be considered subsequently in the judgment. B. In para 27 of the Report (SCC) (which we have quoted earlier), the Court categorically stated that a lottery ticket was goods-not as a physical article but as a slip of paper or memorandum evidencing (a) the right to participate in the draw, and (b) the right to claim a prize contingent upon the purchaser being successful in the draw. This is reiterated in para 29 of the Report (SCC). It was also stated that for the purpose of imposing the levy of sales tax, lottery tickets comprising the entitlement to a right to participate in a draw would have to be regarded as goods properly so called. C. In the same paragraph the Court said what is transferred to the purchaser is the right to participate in the draw. That is the "goods" which was a chose-in-possession. The same right has been later described as the beneficial interest in movable property, that is to say that the right was not the movable property itself. D. Then again in para 30 it was said: (H. Anraj case [( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCC 877] , SCC at p. 880). A claim for arrears of rent has also been held to be an actionable claim (State of Bihar v. Maharajadhiraja Sir Kameshwar Singh [1952 SCR 889 : AIR 1952 SC 252] , SCR at p. 910). A right to the credit in a provident fund account has also been held to be an actionable claim (Official Trustee v. L. Chippendale [AIR 1944 Cal 335 : ILR (1943) 2 Cal 325] ; Bhupati Mohan Das v. Phanindra Chandra Chakravarty [AIR 1935 Cal 756 : 40 CWN 102]). In our opinion a sale of a lottery ticket also amounts to the transfer of an actionable claim. 41. A lottery ticket has no value in itself. It is a mere piece of paper. Its value lies in the fact that it represents a chance or a right to a conditional benefit of winning a prize of a greater value than the consideration paid for the transfer of that chance. It is nothing more than a token or evidence of this right. The Court in H. Anraj [(1986) 1 SCC 414 : 1986 SCC (Tax) 190], as we have seen, held that a lottery ticket is a slip of paper or memoranda evidencing the transfer of certain rights. We agree. 42.Webster's Words and Phrases, Permanent Edn., Vol. 25-A Supplement defines a "ticket" as "a printed card or a piece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the lottery ticket, the claim being actionable claim he is liable to pay tax. The said judgment also interpreted actionable claim as defined under the Transfer of Property Act, but the issue that arose for consideration before the Apex Court was with regard to Sales Tax and liability to pay sales tax on the sale of lottery. 31. The next judgment on which the learned counsel places reliance is the one rendered by a three Judge Bench of the Apex Court in SKILL LOTO SOLUTIONS8 PRIVATE LIMITED v. UNION OF INDIA [(2020) SCC Online SC 990]. The issue before the Apex Court was as follows:- "The petitioner, an authorized agent, for sale and distribution of lotteries organized by State of Punjab has filed this writ petition impugning the definition of goods under Section 2(52) of Central Goods and Services Tax Act, 2017 and consequential notifications to the extent it levies tax on lotteries. The petitioner seeks declaration that the levy of tax on lottery is discriminatory and violative of Articles 14, 19(1)(g), 301 and 304 of the Constitution of India. 10. He reiterated his challenge on the ground of hostile discrimination with regard to only three categories of actionable claims, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excluded for purposes of levy of GST? 74. The Rules have been framed, namely, the Central Goods and Services Tax Rules, 2017 in which Rules by notification dated 23.01.2018 Rule 31A has been inserted dealing with value of supply in case of lottery, betting, gambling and horse racing. Article 31A as was inserted provides as follows: "Section 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 hereinafter. (2)(a) The value of supply of lottery run by State Governments 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 organising State, whichever is higher. (b) The value of supply of lottery authorised by State Governments shall be deemed to be 100/128 of the face value of ticket or of the price as notified in the Official Gazette by the organising 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 sol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d paragraph of the judgment, the revenue would contend that the amendment is valid and the amount that comes to the totalisator is liable to be taxed as it is an actionable claim and all actionable claims are liable to be taxed in terms of the Act itself. The Rules have only qualified it further bringing in a specific provision for taxing 100% of the value of the bet amount paid into the totalisator. The learned counsel would also submit that lottery being a part of the Schedule Rule 31A fell for interpretation before the Apex Court and the Apex Court having held that sale of lottery being an actionable claim 100% of the face of the ticket or the price as notified whichever is higher was liable for payment of tax as the petitioners stand on the same footing. 33. This submission of the learned counsel is not acceptable to me. The issue before the Apex Court in Skill Lotto's (supra) as already noticed was concerning a challenge to the definition of goods and services under the Central Goods and Services Act, 2017. The challenge of the petitioner therein was with regard to hostile discrimination to three categories of actionable claims only being lottery, betting and gambling. The co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (supra). 35. It is germane to notice the judgment of the Apex Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruck down. Article 246A which introduced Goods and Services Act, 2017, the 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, I answer the issues that arose for my 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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