Lottery, betting, gambling and horse racing (Rule 31A) :
The debate on the taxable value of services for betting, lottery, gambling and horse racing has been put to rest by introduction of Rule 31A to the CGST Rules vide notification no. 3/2018- Central Tax dated 23.2018. The said rule overrides all the other provisions relating to Valuation Rules. The use of the word ‘shall be’ implies that the value has to be necessarily determined as per the said rule. According to this rule, the valuation in respect of the following services shall be determined as follows:-
(i) Lottery run by State Government – Value of supply shall be 100/112 of the face value of ticket or the price as notified in the Official Gazette by the organising State; whichever is higher. – The phrase ‘lottery run by State Government’ is defined to mean a lottery not allowed to be sold in State other than the organising State. ‘Organising State’ has the meaning assigned in Rule 2(1)(f) of the Lotteries (Regulation) Rules, 2010 which is defined to mean any State Government which conducts the lottery either in its own territory or sells its tickets in the territory of any other State.
(ii) Lottery authorized by State Government – Value of supply shall be 100/128 of the face value of ticket or the price as notified in the Official Gazette by the organising State; whichever is higher. The phrase ‘lottery authorized by State Government has been defined to mean a lottery which is authorized to be sold in State(s) other than the organising State also.
It is relevant to note that the rate of GST on sale of lottery tickets run by State Government is 12% and the sale of lottery tickets which are authorized by State Government is liable to 28%. As stated in rule 31A, the face value of the lottery ticket shall be taken as inclusive of applicable taxes which is pari-materia with the provisions specified under rule 35.
(iii) Betting, Gambling or Horse Racing – Actionable claim in the form of chance to win in betting, gambling or horse racing in a race club shall be 100% of the face value of the bet or the amount paid to totalisator. This implies that that the value on which GST has to be paid will be the amount of bet placed or the amount paid to the totalisator instead of the commission or share of revenue of the race club.
It is interesting here to refer to schedule III which states that actionable claim other than lottery, betting and gambling would qualify as an activity or transaction which shall be treated neither as supply of goods nor supply of services. This means that transaction in lottery, betting and gambling would for the purpose of GST law, qualify as supply. The terms ‘goods’ under section 2(52) includes actionable claims. Services under= section 2(102) is defined to exclude goods. Accordingly, the actionable claim in the formof chance to win betting, gambling and horse racing with reference to the above definitions will be goods and not services. Business under section 2(17) is defined to include the services provided by a race club by way of a totalisator or a licence to book maker in such club. The tax rate notifications issued for goods states that ‘actionable claim in the form of chance to win in betting, gambling, or horse racing in race club’ is liable to tax at the rate of 28% (refer entry No. 229 to schedule IV of Notification No. 1/2017 (Rate)). The rate notification issued for services also specifies that the gambling as an activity involving services and accordingly, liable to tax at 28% (refer entry No. 34(v) of Notification No. 11/2017 (Rate)).
It is also interesting to refer to the clarifications issued by TRU vide F. No. 354/107/2017-TRU dated 04.01.2018 wherein it is clarified that the actionable claim involving betting, gambling or horse racing would be a service. It is further clarified that the tax would be applicable at 28% on the total value of betting which exceeds the authority to tax since, only certain percentage of the total value of betting will be retained as commission in providing the services of betting / gambling and balance amount forms part of the prize money.
With the above ambiguities there may be some confusion whether to tax actionable claims as goods or services and the rate at which such supply should be taxed.