Delta Corp GST Notice Reignites The Debate On Value Should The Tax Apply

The notice to Delta Corp for the payment of GST shortfall in the past has also brought the spotlight on retrospective taxation.

<div class="paragraphs"><p>Delta Corp.'s 'Deltin Royale<em>'</em> in Goa is India’s largest offshore gaming vessel. (Source: Company Webiste)&nbsp;</p></div>
Delta Corp.'s 'Deltin Royale' in Goa is India’s largest offshore gaming vessel. (Source: Company Webiste) 

The tax notice to Delta Corp., India's largest casino operator, has reignited debate on what value should GST be paid by casino operators.

The dispute stems from whether the levy will be calculated on gross gaming value—the amount wagered minus the amount won in previous bets—or the total value of the bet at the start of the game, which may include prior winnings. That is even after clarifications issued after the 51st Goods and Services Tax Council to the contrary. The bone of contention is the period prior to the latest GST amendment became effective.

The matter is now expected to be settled legally as Delta looks to challenge the tax demand.

Delta and its subsidiaries received a notice of Rs 16,821 crore from the Directorate General of GST Intelligence, Hyderabad, according to its Sept. 22 exchange filing. The demand, including interest and penalty for the period from July 2017 to March 2022, is based on the gross bet value of all games played at the casinos during the relevant period.

The 51st GST council meeting in early August clarified that the tax treatment for casinos would be on the total deposits at the entry point and not on gross gaming revenue or platform fee. Any money put in future games out of the winnings of previous games would be excluded from the tax treatment, according to the clarifications.

Still, the key controversy is the value on which GST is to be leviable, Ritesh Kanodia, indirect taxes partner at Aurtus Consulting, told BQ Prime. Whether it should be on the gross bet value of all games played at the casinos during period prior to the clarification, rather than gross gaming revenue or the net winnings from gaming, as claimed by the industry, he said.

To be sure, even Finance Minister Nirmala Sitharaman had clarified after the 51st GST Council meeting that valuation of supply of online gaming and actionable claims in casinos maybe done based on the amount "paid/payable/payabale to/deposited with the supplier by/on behalf of the player". This, she said, excluded the amount entered into games out of winnings of previous bets, and not on the total value of each bet placed.

The GST Council had decided to implement the new tax rates by Oct. 1, 2023, and review the decision six months after that. In the monsoon session of the parliament, the bills to amend the Central and Integrated GST laws were also passed in both the houses and a formal notification was issued on Sept. 6

The new provisions specify that GST cannot be applied on the bet value as it "leads to double taxation", Kanodia said.

"Interestingly, the government has been taking a view that the changes made by the CGST and IGST Amendment Act, 2023 are only to bring clarity on taxability," he said. "Such a view taken by the government may not be sustainable considering that amendments are substantive in nature and are not procedural." 

According to Kanodia, when a substantive law is brought about by an amendment, there is no assumption that it "ought to be given retrospective effect".

"During the relevant period alleged, (before the clarification), there is no provision which stipulates that GST is to be applicable either on the gross bet value or gross value paid/payable," he said. "Consequently, what could be made liable is only the gross gaming revenue."

The Valuation Question

Prior to the clarification, Rule 31A was used to interpret that the value of supply of actionable claim in betting, gambling or horse racing at 100% or the full face value of the bet or the amount paid into the totalisator.

The casino industry had raised objections to this interpretation and asked for the tax levy to be on the "globally accepted practice" of gross gaming revenue.

This debate was one of the reasons that prompted the constitution of a Group of Ministers to review the taxation of casinos, horse racing and online gaming.

What's Next

The outcomes of the 51st GST Council to levy 28% and the subsequent clarification to the levy tax at the total deposits at the entry point is prospective. Meaning it would come into effect from the date of announcement and apply into the future until further change.

However, this opens debate for interpretation on the tax liability owed for the period before the amendment, like in the case of Delta.

"Authorities have the right to adjudicate but it must be done in the most pragmatic manner," Abhishek Rastogi, founder of Rastogi Chambers, told BQ Prime. "The clarity the tax department has provided must be implemented even into the past so that the industry is "not killed and at the same time revenues remain protected if there is a leakage".

Delta said in its exchange filing that GST demand on gross bet value, rather than gross gaming revenue, has been an industry issue and various representations have already been made to the government.

The company has been legally advised that the Notice and the tax demand is "arbitrary and contrary to law", it said. Delta said it will pursue all legal remedies available to it to "challenge such a tax demand and related proceedings".