GST on Prize money.??

 

Contractually, money paid into the pool account is non-refundable. And Payee of the prize (Winner) is one among several Payers (Participants). So, what does consideration procure? Right to participate and stand a chance to win.

 

Consideration is the price at which the promise is purchased. To participate is one thing and to collect prizemoney is another. Commission retained out of pool money would be a consideration for participation, if pool money net-of-commission were refundable to the very same Payer (or Participant).

 

Prize money being financed out of pool money does not imply gross collections from all Participants (Payers) is acceptance of deposits held in fiduciary capacity. Money lawfully held in trust, are those held by a foreman of chit fund or balance in e-wallet. Money paid to Totalizator is not held in trust because once paid by ‘A’, it is gone and never to be returned although the same may be used to distribute a prize to ‘B’. What fiduciary role this?

 

In a recent decision, first principles of contract law appear to have been overlooked, where clear lines of demarcation of (i) non-refundable payment into pool account by Participant (Payer) got tangled with (ii) means of financing prize money, to hold rule 31A of CGST Act to be ultra vires.

 

Contract of placing bets is not inter se various Participants but severally with Totalizator. Holding money in fiduciary capacity requires money to remain refundable to the very same Payer (Participant). But where the contract (actual or implied) or by acting upon an advertisement of terms or vide bylaws, do not subsist inter se but severally with Totalizator, there is an outright consideration for the right “to participate and stand a chance to win”.

 

Surely, no Participant can purchase this right by paying just the commission portion. When the payment of anything less than gross pool money, fails to bring about a binding contractual relationship, that which brings about such deliberate relations is 'consideration'. And the collection of prize money is an incident of participation that does not involve any supply to be brought under the tax net.

 

Expression ‘commission’ implies an obligation between a Principal and a Third-party. If Totalizator is the Agent, would Participants be Principal and Third-party? Commission of Totalizator may just be a moniker used and that can hardly guide the legal construct of the relationship between parties involved.

 

Say, insurance premia are paid by every Insured. Insurer pools premia collected to finance payment of compensation in the event of a claim by any Insured. If all Insured claim compensation, then the premium will sky-rocket as the uncertainty is not 'whether' compensation is payable but 'when' compensation is payable. #GST is charged on the entire premium and not on the income of the Insurer after settling claims for the period.

 

When (i) amount collected is non-refundable and (ii) right to participate and stand chance to win allowed, contract stands performed by Totalizator and tax applies!