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“GST Only on Commission” Rules Karnataka High Court in Big Break For Horse Racing Clubs

GST on Horseracing
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  • Namita Ghosh June 5, 2021
  • 2 Minutes Read

It’s been an unprecedented year for the horse racing clubs in India, with many of them coming threateningly close to bankruptcy for want of live racing due to the pandemic. Even the brief racing season from late 2020 to early 2021 had to be cut short after the second wave of the pandemic hit the country.

However, the Karnataka High Court recently delivered the struggling horse racing sector a god-sent shot in the arm. Hearing a petition filed by the Bangalore Turf Club (BTC) and the Mysore Race Club (MRC), the Karnataka High Court on June 2 struck down section 31A (3) of the Central GST Rules, 2017 and section 31A of the Karnataka GST Rules, 2017 that imposed GST liability on the entire bet amount received by the horse racing clubs. Instead, the clubs will henceforth have to pay GST only on the commission on the bets retained by them.

Justice M Nagaprasanna, in his judgment said, “The petitioners are liable for payment of GST on the commission that they receive for the service that they render through the totalisator and not on the total amount collected in the totalizator…the petitioners shall be entitled to all consequential benefits that flow from the aforesaid orders.”

Underlining that the betting amount placed with the totalizator cannot be considered a business, goods, or supply as defined under the GST Act, Justice Nagaprasanna`s order read, “This can be nothing different from that of a stockbroker 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.”

Horse racing clubs currently pay 28% GST on the face value of the bets received by them from the punters. The BTC and the MRC citing that the practice was unfair, resulting in a significant loss of revenue, challenged this valuation method by the tax authorities in the Karnataka High Court in 2018. Not just that, the benefits most significantly will be passed on to the horse racing punters who will no longer have to bear the extra GST burden.

The Karnataka High Court’s judgment comes a little over a week after the GST Council set up a panel of Ministers to look into the valuation of services offered by online gaming companies and other gambling operators like lotteries, casinos, and racing clubs.

Even though the High Court order is open to appeal by the tax authorities, if the decision holds, this will likely become the “defacto method” of computing the valuation of services across racing clubs in India.


GST Only on Commissions – A Tax Breather For Horse Racing Clubs!

The tote collection (or the betting commission) collected by horse racing clubs forms a significant part of their revenue. The racing clubs were required to pay 28% GST on the face value of the bets received by them and not just on the commission or earnings of the club. The BTC and the MRC had challenged this valuation method under GST in the Karnataka High Court in 2018.

In February 2019, the Turf Authority of India (TAI), representing six racing clubs, submitted a request to Union Minister Piyush Goyal seeking a reduction in the GST tax slab on bets accepted by the racing clubs and bookmakers.

The COVID-19 led shutdown sent the cash-strapped racing clubs of the country into a spiral, forcing them to mull over the possibility of accepting online bets on horse races. Last June, BTC confirmed that it was working on an integrated online betting app that would allow bettors across the country to place bets on horse races. However, the proposal was challenged by C. Gopal in the court, following which the Karnataka government withdrew the permission given to BTC for online betting. Nevertheless, online betting on horse racing has opened up recently.

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