Karnataka HC strikes down Rule 31A(3) of CGST Rules 2017 on plea filed by Bangalore Turf Club

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The Karnataka High Court has struck down Rule 31A(3) of the Central Goods and Services Tax (CGST) Rules, 2017 on value of supply in case of lottery, betting, gambling and horse racing.

‘A single judge bench comprising of Justice M Nagaprasanna of the High Court delivered the judgment on a plea filed by Bangalore Turf Club (BTC) challenging the Rule 31A(3) of the CGST Rules, 2017 and the corresponding State Rule as reported by bar and bench.

 Bangalore Turf Club was represented by senior advocate K Vivek Reddy on the other hand Advocate Vikram Huligol represented the State of Karnataka .

The provision in question reads as under:

Rule 31A. Value of supply in case of lottery, betting, gambling and horse racing

(3) 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 100per cent of the face value of the bet or the amount paid into the totalisator.

As per the earlier rule GST was imposed on the total revenue earned  by the race club, instead of the actual commission or net profit earned by it.

The race club contended before the GST regime as a service provider under Chapter V, Finance Act, 1994 because of which only service tax was levied from the commission, however post GST the petitioner was bound to pay tax from the total turnover.

However, after the GST Act come into force, tax i.e., GST was  officially demand and collected on the amount paid to the totalisator.

“This is an amount which does not belong to the Race Club and is held in trust for the winning punter. The Petitioner’s role is confined to providing a pooling service. The petitioner is taxed on an amount not accruing to it,” the plea argued.