Point of Law: 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 provisions of the Act do not bring in the activity of the petitioners under the ambit of the Act. Rule 31A(3) travels beyond what is conferred upon the Rule making authority under Section 9 which is the charging section, by way of an amendment to the Rule.

ORDER :

The petitioners in these writ petitions inter alia challenge the legislative intent of making the petitioners liable to pay Goods and Services Tax (‘GST’ for short) on the entire bet amount received by the totalisator and declare the amendments dated 25-01-2018 which inserted Rule 31A(3) to the CGST Rules as being ultra vires the CGST Act.

2. Adumbrated in brief, the factual background as projected by the petitioners are as follows :

The petitioners, are Companies incorporated under the Companies Act as a Public Limited Company are carrying on the business of a race club, which includes lay-out and preparing any land for running of horse 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 On and from 1st July 2017, the Mysore Betting Tax and the Service Tax provisions stood repealed and the Goods and Services Tax laws were brought into force.

5. From the appointed day i.e., 01-07-2017 a combination of these taxes; Central Goods and Services Tax (‘CGST’ for short), Integrated Goods and Services Tax (‘IGST’) and State Goods and Services Tax (‘SGST’ for short) and Goods and Services Tax of Union Territory (‘UTGST’) were all brought into force. Till the onset of these taxes, the petitioners were treated as service providers under Chapter-V of the Finance Act, and Service Tax was levied on the petitioners’ commission alone. After the CGST regime began, an amendment was brought into Rule 31A by insertion of Rule 31A(3) to the CGST Rules. The amendment made GST payable by the petitioners on the amount of bet that gets into the totalisator. It is this amendment that is called in question by the petitioners in this writ petition on the ground that the Rule is made beyond the powers conferred under the CGST Act, which would render it to be ultra vires and has sought a consequential declaration that the CGST and KSGST be restricted only to the Commission that the petitioners get on holding the amount in the totalisator for a brief period.

6. Heard Sri. Vivek Reddy K., learned Senior Counsel for Sri. Atul K. Alur, learned counsel for petitioners and Sri. Vikram Huilgol, learned Additional Government Advocate for respondent No.1 and Smt. M.R. Vanaja, learned Central Government Standing Counsel for respondent Nos.2 and 3.

Submissions: Petitioners:

7. The learned Senior Counsel Sri Vivek Reddy.K. appearing for the petitioners has vehemently argued and raised the following contentions :

(1) Rule 31A (3) violates Article 246A read with Article 366 (12A) and exceeds the constitutional mandate given to the Parliament and Legislature to levy tax only on the supply of goods and services on the principle that if there is no supply there is no tax.

(2) Rule 31A (3) in effect imposes tax on the petitioners on the entire bet value without the petitioners supplying any bet, thus violating constitutional mandate of Article 246A.

(3) According to the learned counsel, every tax contai