The Karnataka High Court on Wednesday struck down Rule 31A(3) of the Central Goods and Services Tax (CGST) Rules, 2017 which imposes Liability on Entire Bet Amount Received By Horse Race Clubs.
The petitioner, Bangalore Turf Club Limited and Mysore Race Club Limited moved the court challenging the legislative intent of making the petitioners liable to pay GST on the entire bet.
Mr. Vivek Reddy.K, the Senior Counsel appearing for the petitioners has vehemently argued that Rule 31A (3) violates Article 246A read with Article 366 (12A) and exceeds the constitutional mandate given to the Parliament and Legislature to levy tax only on the supply of goods and services on the principle that if there is no supply there is no tax.
Mr. Reddy urged that Rule 31A (3) in effect imposes tax on the petitioners on the entire bet value without the petitioners supplying any bet, thus violating constitutional mandate of Article 246A.
He further explained that every tax contains four components – taxable event, taxable person, rate and measure of tax. Without assessment on all this, imposition of tax is contrary to law. 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.
On the other hand the Additional Government Advocate, Mr.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.
“Since an 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 ultra vires the Act and the amendment is to be rejected as a figment of imagination and cannot be construed to be legally sound and would submit that the writ petition is to be dismissed,” Mr. Huligol submitted.
The single bench of Justice M Nagaprasanna noted that the tax is only on the supply of goods and services; on a value determined under Section 15 of the Act which deals with the value of taxable supply.
The court ruled that 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 resultantly, quash the same only insofar as it concerns the petitioners.
“I declare 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 and resultantly quash the same insofar as it concerns the petitioners,” the court said.
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