Exclusive: Sikkim HC asks DGGI to not take any further action in Delta Corp’s Rs. 628 crore GST showcause notice

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A single judge bench of the Sikkim High Court comprising of Justice Bhaskar Raj Pradhan on 20th October issued notice on the interim application of listed casino and gaming company Delta Corp Limited challenging the showcause notice dated 27th September, 2023 asking Deltin Denzong, Gangtok, Sikkim to pay Rs. 628 crores as Goods and Services Tax (GST) at the rate of 28% on the full face value of bets for the period July 2017-March 2022.

The showcause notice issued to Deltin Sikkim was part of the larger set of showcause notices issued to the company and its subsidiaries in September-October 2023 totaling to over Rs. 23,000 crores, which is many times more than its reported revenue for the said period.

In its writ petition filed before the Sikkim High Court, Delta Corp had challenged Rule 31A of the Central Goods and Services Tax Rules, 2017, Section 15(5) of the Central Goods and Services Tax Act, 2017, besides challenging certain other circulars, clarifications and rate notifications issued by the Central Board of Indirect Taxes and Customs (CBIC).

During the course of the hearing of the writ petition yesterday, Harish Salve, senior counsel representing Delta Corp flagged the absurdity of the demands raised by the Directorate General of Goods and Services Tax Intelligence (DGGI) based on Rule 31A, which mandates that GST be charged on the full face value in case of chance to win in gambling and betting.

Besides highlighting the practical impossibility of following this rule, Salve contended that there was a “nonsensical proposition” envisaged in Rule 31A and it would be practically impossible to deduct 28% tax before betting on each hand of blackjack or each spin of the roulette wheel. Salve also submitted that before the GST-regime, entertainment tax was imposed on Gross Gaming Revenue (GGR) on casinos in both Goa and Sikkim, i.e., the two states where the activity is permitted.

The senior counsel explained the concept of GGR, which is the bets placed, minus the winnings paid out to customers, i.e., the earnings or revenue of the casino. He further contended that players making bets would not constitute supply of goods or services under the GST regime and GST on gambling and betting cannot be imposed.

Salve also mentioned that various representations were made by All India Gaming Federation (AIGF) and other bodies pointing out the absurdity in the logic of taxing face value of bets, and there was significant discussion between various stakeholders and the taxation department on the manner of valuation and taxation in case of casinos, over the last few years.

The Sikkim High Court after hearing Salve’s submissions issued notice to all parties on the interim application and asked the Union of India, DGGI, State of Sikkim and GST Council, among other respondents, asking them to file their replies within two weeks.

Justice Pradhan further ordered that status quo as on today should be maintained by the respondents with regard to the showcause notice, indicating that no precipitative or coercive action should be taken against Delta Corp in the meanwhile. The matter is further fixed for hearing on 5th December, 2023.

Meanwhile, Delta Corp and its subsidiaries Highstreet Cruises and Entertainment Private Limited and Delta Pleasure Cruise Company Private Limited have also filed similar writ petitions before the Goa bench of the Bombay High Court challenging the over Rs. 16,000 crore showcause notices issued to its casinos in Goa. The petitions are slated to come up for hearing on Monday, 23rd October, 2023 before a bench of Justices MS Sonak and Bharat P. Deshpande.