Senior Advocate Harish Salve while appearing before the Goa bench of the Bombay High Court for listed casino and gaming company Delta Corp Limited and its subsidiaries in their challenge to the Rs. 16,000 crore GST showcause revealed that some of his clients had met the Finance Secretary who had informed them that if they do not challenge the prospective imposition of 28% GST on every deposit or purchase of chips in courts, the government would make the past tax notices go away.
Salve was possibly referring to the series of meetings that Union Revenue Secretary Sanjay Malhotra had held with representatives of the gaming industry in the last couple of months to understand their concerns and representations which can be considered by the GST Council.
The senior counsel also submitted that the fallacy in the manner of calculation of tax in the current showcause notice is apparent and that the department cannot create fictitious values of turnover based on the house advantage in games to come up at the gross value of bets.
It may be noted that several online real money gaming as well as casino companies have received showcause notices from the GST department claiming tax on the full face value of bets or entry fee at the rate of 28% for the period 2017-22, instead of Gross Gaming Revenue (GGR) on which the industry has been paying the taxes. The total value of showcause notices issued to over 40 online gaming and casino companies reportedly exceeds Rs. 2.50 lakh crores, which is several times higher than the reported turnover of these companies for the period.
However, the GST Council in its 50th and 51st meetings held in July-August 2023 had changed the methodology of charging tax on online money gaming and casino industries, imposing the 28% tax on the initial deposit made in the online gaming wallet or purchase of casino chips or tokens, while clarifying that return or refund of chips or tokens would not be deductible from the value of supply. Importantly, the council had also clarified that winnings redeployed by players for playing future games or contests would not be subject to GST, thereby to an extent allaying the concerns of repetitive taxation raised by the industry.
Malhotra’s statement that the union government ‘will make retrospective GST notices go away’ indicates that the GST department is possibly on weak legal footing when it comes to showcause notices issued to the gaming industry for the last five years. In fact, the central and state governments had made several definitional changes to include online money gaming and casinos as taxable actionable claims as well as included them as supplier of GST, which did not exist for the 2017-2022 period.
The outcomes of the legal challenges to the showcause notices issued by the GST department for the past period by Delta Corp and other gaming companies will be keenly awaited by the industry.