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August 17, 2023

Bangalore Turf Club vs. State of Karnataka – GST and Betting Taxation

Bangalore Turf Club vs. State of Karnataka – GST and Betting Taxation


This article delves into the legal case of Bangalore Turf Club Ltd. versus the State of Karnataka, centered around Rule 31A (3) and its compatibility with Article 246A and Article 366 (12A) of the Constitution. The case revolves around GST imposition on total bets and commission earned, questioning the constitutional validity.

Case Background:

 The case emerges from the challenge to a circular dated 04/01/2018, which mandates GST collection on the total bets placed. The club argues that GST should only apply to the commission earned from the bets, not the entire betting amount. For instance, if ten punters bet Rs. 1000 each, totaling Rs. 10,000, with 20% (Rs. 2000) retained as commission, the club contends that GST should be on the commission of Rs. 2000, not the full Rs. 10,000.

Context and Setting:

Bangalore Turf Club Ltd. operates as a horse racing company, conducting races mostly on weekends. Punters frequent the Race Courses, placing bets on horses. These bets fund the winning punters, with the club retaining a commission. The State aimed to tax the total bet amounts under the CGST and IGST Acts from 1/7/2017.

Core Issue: The central debate revolves around the legality of Rule 31A (3) and whether GST should be levied on the earned commission alone or the entire betting amount.

Arguments Presented:

  • Bangalore Turf Club argues that they provided a unique service to punters, earning a commission in return. They claim that only this commission should be taxable. They assert that Rule 31A (3) exceeds its authority under section (9).
  • The State, however, argues that taxing the entire betting amount is valid, not just the club’s commission. They support this stance through the insertion of Rule 31A (3) into the Act.

Court’s Observation and Verdict:

  • The court deems Rule 31A (3) inconsistent with the CGST Act and rules it ultra vires.
  • In favor of Bangalore Turf Club, the court establishes that the club’s actual income is from commission, not total betting amount. Thus, GST should apply to the commission earned, not the full bets.
  • The circular from 4/1/2018 is nullified in relation to the applicants.
  • Consequential benefits of this decision are awarded to the applicants.

Conclusion: The court’s decision supports Bangalore Turf Club, emphasizing that taxing the total betting receipts contradicts the nature of their income. They highlight the role of sponsors and advertisers in maintaining race clubs, indicating that additional tax on total bets could have adverse effects. The ruling underscores the substantial contributions that race clubs make to the government through taxes.

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