TMI Blog2021 (6) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... unt 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 . 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orse 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 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 On and from 1st July 2017, the Mysore Betting Tax and the Service Tax provisions stood repealed and the Goods and Services Tax laws were brought in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness 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 figment of imagination and cannot be construed to be legally sound and would submit that the writ petition is to be dismissed. 10. I have given my anxious consideration to the submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 provision which is relevant in interpreting a fiscal statute. Equally impermissible is an interpretation which does not follow from the pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion - 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 Section 4-A in isolation and the notification issued thereunder in its entirety. In view thereof, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and Services Tax was brought into effect by amendment to Article 246A. Certain provisions of the Central Goods and Services Tax Act, 2017 which are germane for consideration of the lis are extracted hereunder for the purpose of ready reference: 2. Definitions. - In this Act, unless the context otherwise requires, (1) actionable claim shall have the same meaning as assigned to it in Section 3 of the Transfer of Property Act, 1882 (4 of 1882); (17) business 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 ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 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 considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a Member or a Director in a body established by the Central Government or a State Government or local authority and who is not deemed as an employee before the commencement of this clause. 4. Services of funeral, burial, crematorium or mortuary including transportation of the deceased. 5. Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. 6. Actionable claims, other than lottery, betting and gambling . 7. Supply of goods from a place in the non-taxable territory to another place in the non-taxable territory without such goods entering into India. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a fourfold 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. 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her win nor lose, it follows that it is not a contract of wagering . Nor is it a contract by way of gaming . The cases show the word gaming adds nothing to the word wagering . On the authorities I feel compelled to hold that a contract by a backer who puts money on the totalisator is not a contract by way of gaming or wagering (emphasis applied) The Court of appeal clearly held that a contract by a backer who puts money into totalisator is not a contract by way of gaming or wagering. 23. The activities of a race club is delineated by the Apex Court in the case of Dr. K.R.LAKSHMANAN v. STATE OF T.N. AND ANOTHER [(1996) 2 SCC 226] wherein, the Apex Court holds as follows:- 17. 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 1 of the entrance fee represents the entertainment tax payable to the Commercial Tax Depa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng on games of chance. It would not include games of skill like horse-racing. In any case, Section 49 of the Police Act and Section 11 of the Gaming act specifically save the games of mere skill from the penal provisions of the two Acts. We, therefore, hold that wagering or betting on horse-racing a game of skill does not come within the definition of gaming under the two Acts. 34. Mr. Parasaran has relied on the judgment of the House of Lords in Attorney General v. Luncheon and Sports Club Limited [1929 AC 400] and the judgment of the Court of Appeal in Tote Investors Limited v. Smoker [(1967) 3 All ER 242] in support of the contention that dehors Section 49 of the Police Act and Section 11 of 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 busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ystem to the common detriment , the aims and objectives of the Act refer to the economic system of the Madras Race Club . What is meant by the economic system of the Madras Race Club is not known. Even if it is assumed that betting by the punters at the totalizator and with the bookmakers is part of the economic system of the Madras Race Club, it has no relevance to the objectives specified in Article 39(b) and (c). We are, therefore, of the view that reference to Article 39(b) and (c) in the aims and objects and in Section 2 of the Act is nothing but a mechanical reproduction of constitutional provisions in a totally inappropriate context. There is no nexus so far as the provisions of the 1986 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, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 26. Section 2(31) defines what is consideration , which reads as follows: 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 shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Totalisator operated by BTC, if ₹ 100/- is placed as bet, ₹ 30/- is retained by BTC as commission and the balance amount collected by the Totalisator is distributed among the winners based on the winning horse and bet amount. Effectively, irrespective of the result of the race, the petitioner receives consideration in the form of Commission. Whereas, when Punter places bets through the Licenced Bookmaker, the bet amount and the Odds on Individual Horses are decided by the Bookies. There could be situations wherein Bookies will make a loss, if all the bets end up in Winning Position. ( emphasis added) In terms of what is stated on oath, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aj [(1986) 1 SCC 414 : 1986 SCC (Tax) 190] in fact held. Did it hold, as was found by the Karnataka High Court in Nirmal Agency v. CTO [(1992) 86 STC 450 (Kant)], that the lottery tickets were goods only because they represented the right to participate in the draw? Or did it hold, as has been found by the Delhi High Court, that the lottery tickets themselves were the goods which were sold? The conflict is a direct consequence of the somewhat ambiguous language used in H. Anraj [(1986) 1 SCC 414 : 1986 SCC (Tax) 190]. A. In para 23 of the Report (SCC), the Court did say that lottery tickets are movable property and as such would fall within the expression goods . However, the Court qualified that statement immediately by saying that the questions whether tickets constituted goods properly so called or are slips 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , inter alia, actionable claims from the definition for the purposes of the Act. Were actionable claims, etc., not otherwise includible in the definition of goods there was no need for excluding them. In other words, actionable claims are goods but not for the purposes of the Sales Tax Acts and but for this statutory exclusion, an actionable claim would be goods or the subject-matter of ownership. Consequently, an actionable claim is movable property and goods in the wider sense of the term but a sale of an actionable claim would not be subject to the sales tax laws. 40. An actionable claim would include a right to recover insurance money or a partner's right to sue for an account of a dissolved partnership or the right to claim the benefit of a contract not coupled with any liability (see Union of India v. Sri Sarada Mills Ltd. [(1972) 2 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eaning of sales tax statutes when that right is transferred. When H. Anraj [(1986) 1 SCC 414 : 1986 SCC (Tax) 190] said that the right to participate was a beneficial interest in movable property, it did not define what that movable property was. The draw could not and was not suggested to be the movable property. The only object of the right to participate would be to win the prize. The transfer of the right would thus be of a beneficial interest in movable property not in possession. By this reasoning also a right to participate in a lottery is an actionable claim. Placing reliance on the aforesaid paragraphs, the contention of the learned counsel for the respondents is that lottery which is also declared to be an actionable claim which is liable to be taxed is also held in a fiduciary capacity by the person who sells the lottery ticket. Though no amount is received by the said person 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res extra commercium and the petitioner cannot claim protection under Article 19(1)(g)? (II) Whether the inclusion of actionable claim in the definition of goods as given in Section 2(52) of Central Goods and Services Tax Act, 2017 is contrary to the legal meaning of goods and unconstitutional? (III) Whether the Constitution Bench judgment of this Court in Sunrise Associates (supra) in paragraphs 33, 40, 43 and 48 of the judgment has laid down as the proposition of law that lottery is an actionable claim or the observations made in the judgment were only an obiter dicta and not declaration of law? (IV) Whether exclusion of lottery, betting and gambling from Item No. 6 Schedule III of Central Goods and Services Tax Act, 2017 is hostile discrimination and violative of Article 14 of the Constitution of India? (V) Whether while determining the face value of the lottery tickets for levy of GST, prize money is to be 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision has to be given its full effect and something which is not required to be excluded in the value of taxable supply cannot be added by judicial interpretation. 79. Further, Rule 31A as noted above, sub-rule (2) as amended clearly provides that value of supply shall be deemed to be 100/128 of the face value of ticket or of the prize as notified in the Official Gazette by the Organising State, whichever is higher. Learned Additional Solicitor General has explained the working of Rule 31A of Rules by giving an example: For example, if ₹ 100 is the face value of lottery ticket, 28% GST is levied only on ₹ 78.125[(100*28)/128]. GST amount will be 21.875. Therefore, ₹ 100 includes GST of 21.875 on the taxable value of ₹ 78.125. This is a mechanism to split the face value of ₹ 100 in two parts (A and B). A is the transaction value. B is GST on A. The formula as above is to come to A by reverse calculation. (emphasis applied) 32. Relying on the aforesaid 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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. 34. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the legislature never intended to give authority to make such rules). 16. The court considering the validity of a subordinate legislation, will have to consider the nature, object and scheme of the enabling Act, and also the area over which power has been delegated under the Act and then decide whether the subordinate legislation conforms to the parent statute. Where a rule is directly inconsistent with a mandatory provision of the statute, then, of course, the task of the court is simple and easy. But where the contention is that the inconsistency or non-conformity of the rule is not with reference to any specific provision of the enabling Act, but with the object and scheme of the parent Act, the court should proceed with caution before declaring invalidity. (emphasis supplied) In terms of the afore-extracted judgment of the Apex Court, 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 Goods and Services Act, 2017, the definitions and other p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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