Prize money received from horse-race clubs not liable to GST: AAAR

Maharashtra’s Appellate Authority for Advance Ruling (AAAR) has held that receipt of prize money/stakes from horse-race clubs — in the event horse wins the race — would not be subject to Goods & Services Tax (GST).

“We set aside the advance ruling issued by AAR and hold that prize money/stakes will not be subject to GST in the absence of any supply,” AAAR said in its order while adding that applicant is not entitled to avail any Input Tax Credit (ITC). Earlier, AAR had ruled that the amount of prize money received from the events conducting entities would be covered under supply category of GST law and liable to be taxed at 18 per cent.

Separate transactions

The AAAR observed there are two separate transactions here - participation in races organised by horse racing clubs against entry fee payable by the horse race owner which is supply of service by race conducting entity to such aspiring horse race owners and supplying of horses for the event. The Bench said there is no element of service when the horse wins the race and gets the prize.

As regards, the contention it is a conditional contract, the Bench said that not every contract becomes taxable under the CGST law. Every supply is a contract, but not every contract is a supply, it added.

The Tax Department had approached AAAR appealing against the order of AAR as it felt that certain facts related with investigation against Vijay Baburao Shirke, the horse owner was not disclosed before AAR.

The AAAR observed that no service has been provided by the applicant to the racing clubs for the prize money/stakes received from such clubs for the reason that only those horse owners winning the race gets the prize money. Thus, there is no direct nexus between the activities carries out by the horse owners viz. by providing thoroughbred horses to race clubs for organizing horse race events, and the prize money received by such horse owners.

The Authority found that clause of direct and immediate link between the supply and consideration is absolutely absent in present situation. Accordingly, it clarified that participation and winning are two separate events or transaction.

Since there is no taxable supply, assessee will not be eligible to avail ITC in respect of any input supply including the entry fee, the training charges paid to the horse trainers and the charges paid to the jockeys etc, it said.

According to Harpreet Singh, Partner at KPMG, participation and winning are two separate transactions and direct and immediate link between supply and consideration is essential are interesting observations in this ruling. “This ruling could provide some guidance to the online gaming industry which is gaining prominence these days, and struggling to decipher similar issues on taxability under GST,” he said.

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