GST ON PRIZE MONEY

[VISHAKA GOYAL]

Whether GST will be applicable on winning prize money or grants received due to participation in any event?

To decide the applicability of GST, the first and foremost aspect that needs to be looked at is whether the activity amounts to Supply as per Section 7 of the CGST Act.

Section 7 of the CGST Act has been reproduced below for a ready reference:

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, license, 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; and

(c) the activities specified in Schedule I, made or agreed to be made without a consideration

(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 transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council,

shall be treated neither as a supply of goods nor a supply of services.

(3) Subject to the provisions of sub-sections (1), (1A)  and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as-

(a) a supply of goods and not as a supply of services; or

(b) a supply of services and not as a supply of goods

Now, from Section 7(a), it can be seen that any type of supply of goods or service will be treated as supply if:

1. It is made or agreed to be made for a consideration by a person.
2. It is in the course or furtherance of business.

Hence, GST is levied on a supply made for a consideration subject to certain exceptions wherein a supply without consideration also comes under GST (as mentioned in Schedule I of the CGST Act). For a payment to qualify as consideration, it should be in respect of, in response to or for the inducement of a supply. A direct and immediate nexus between the supply and consideration must be present.

In a competition or in an event when there are several participants, and the prize is given only to the winners declared, there cannot be said to be any direct link between the prize money given and the activities performed during participation in the event as there are many participants, but the prize money is given only to the winners. It cannot be said that only the participants who have won the event have rendered a service and the rest have not. Only participation in no way guarantees award or prize money. The payment of the prize money is contingent upon achievement of the result at the end of the event which is an uncertain event. The direct and immediate nexus between the supply and consideration, is absent as participation and winning are two separate events/transactions. The prize money is a consequence of chance/skill and circumstance and there is no certainty in this regard. Hence, there is no quid pro quo because the prize money is not given for participation in the event, but for winning in the event.

The same was held by Maharashtra’s Appellate Authority for Advance Ruling in the case of M/S Vijay Baburao Shirke where in the Appellant Authority set aside the advance ruling issued by AAR and held that prize money/ stakes will not be subject to GST in the absence of any supply. Accordingly, the Applicant- Respondent is also not entitled to avail any ITC in accordance with the provisions of section 17 (2) of the CGST Act, 2017. Maharashtra’s Appellate Authority for Advance Ruling had held that the receipt of prize money from horse races, awarded by clubs such as Royal Western India Turf Club, will not be subject to GST in the hands of owner.

The AAAR held that “Only those horse owners receive these considerations whose horses win the races organized by such clubs. Thus, there is no direct nexus between the activities carried out by the horse owners, viz.by providing thoroughbred horses to race clubs for organizing horse race events, and the prize money received by such horse owners.”. It further held that, “The applicant-respondent has contended that both the race organizer and the horse owner receive a direct and individual benefit from the transaction. In the above issue, it is agreed that holding and organizing is a service given by the club to the horse owners for which the horse owner pays the entry fees. But we fail to see what kind of service is given by the horse owner to the race club when he participates in the race. And if the same is to be held as a service then, even the rest of the horses which are not winners should get consideration for enabling the club to hold a race which is surely not the case in the instant issue. Surely, it cannot be a case that service is provided by all and consideration is received by only a few ones.”

Hence, going by the above ruling and in my opinion as per the explanation given above winning prize money or grants due to participation in an event does not amount to supply and hence will not be subject to GST. However, suitable clarification should be given by CBIC in order to avoid any kind of litigation on the same in future.