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GST on Casinos: Gross Gaming Revenue vs Gross Bet Amount a fight for Existence

Recently, after Online Gaming Industry, Casino Industry has received SCNs of more than Rs. 20 Thousand Crores from GST department. In the SCN, it has been alleged that Taxpayers have paid Short GST considering the under valuation by them. As of now, SCNs in respect of M/s Delta Corp have been stayed by the Hon'ble HC of Sikkim & Bombay (situated at Goa) as Constitutional validity of Rule 31A and Section 15(5) has been challenged by the Taxpayer.

In this article, we will discuss details of the dispute and details including relevant Section and Rules including extracts from GoM recommendations regarding it. Further, this article will be live one and will be updated as when current updates are available. We will also touch upon current law position after 01st October, 2023.

What is the Dispute (Point of Contention)

As per Reports, Casinos were paying GST on Gross Gaming Revenue, whereas Department is asking GST on Gross Bet Amount as per Rule 31A.

What is meaning of Gross Gaming Revenue

Gross Gaming Revenue is the difference between the amount wagered (bet) by the customers and amount won by the customers. It is indirectly, can be construed as Gross Revenue of the Casino Industry. In financials also, generally, Casino Industry reports Gross Gaming Revenue as their Revenue.

Gross Gaming Revenue = Total Bet Amount - Winning Amount.

Gross Bet Amount: On the other hand, Department is asking GST on Gross Bet Amount in terms Rule 31A(3) read with Section 15(5).

What is Section 15(5) & Rule 31A

Section 15(5)

As per Section 15(5),

(5) Notwithstanding anything contained in sub-section (1) or sub-section (4), the value of such supplies as may be notified by the Government on the recommendations of the Council shall be determined in such manner as may be prescribed.

As per Section 15(5), Government has authority to notify specific way to value the nature of supplies it notified.

Accordingly, using Section 15(5), Government has notified Rule 31A for valuing supplies specified in Rule 31A..

Rule 31A

(1) Notwithstanding anything contained in the provisions of this Chapter, the value in respect of supplies specified below shall be determined in the manner provided hereinafter.

(2) The value of supply of lottery shall be deemed to be 100/128 of the face value of ticket or of the price as notified in the Official Gazette by the Organising State, whichever is higher.

Explanation :- For the purposes of this sub-rule, the expression " Organising State" has the same meaning as assigned to it in clause (f) of sub-rule (1) of rule 2 of the Lotteries (Regulation) Rules, 2010.]

(3) The value of supply of actionable claim in the form of chance to win in betting, gambling or horse racing in a race club shall be 100% of the face value of the bet or the amount paid into the totalisator .

This Rule 31A has been made effective by N.No. 3/2018 dated 23 rd January,2018.

Before Rule 31A comes into force, Circular No. 27/01/2018-GST clarified the Rule Position which also specify that GST needs to be paid on Bet Amount.

From the Rule 31A in its present form, though harsh, it appears that GST needs to be paid on Gross Bet Amount.

Challenge the Demand on Ground of Constituationality

Therefore, apart from other grounds, main grounds (though reasons and details not available as of now in Public) for challenge the SCN is Constitutional Validity of the Section 15(5) and Rule 31A itself. Current Status of the Petitions along is mentioned in next Section.

Moreover, the Hon’ble Supreme Court upheld the validity of statutory provisions on valuation including rule 31A for valuation holding that GST is payable on 100% of the face value of bet or money as provided for in the legislation in the case of Skill Lotto Solutions Pvt Ltd. (Source Report of the Group of Ministers (GoM) on Casinos, Race Courses and Online Gaming).

Position after 01st October, 2023

With effect from 1st October, 2023 betting along with other items like Online gaming etc. have been declared as Specified Actionable Claim in Section 2(102A) of the CGST Act. Further, necessary amendments have been made in Act and Schedules to make it taxable in GST. For Complete details of the same, please read at : GST on Actionable Claims.

Further, Specified Rule 31C has been notified for Valuation of Supply of Actionable Claims in Casinos as:

Value of supply of actionable claims in case of casino.– Notwithstanding anything contained in this chapter, the value of supply of actionable claims in casino shall be the total amount paid or payable by or on behalf of the player for –

(i) purchase of the tokens, chips, coins or tickets, by whatever name called, for use in casino; or

(ii) participating in any event, including game, scheme, competition or any other activity or process, in the casino, in cases where the token, chips, coins or tickets, by whatever name called, are not required:

Provided that any amount returned or refunded by the casino to the player on return of token, coins, chips, or tickets, as the case may be, or otherwise, shall not be deductible from the value of the supply of actionable claims in casino.

Explanation.- For the purpose of rule 31B and rule 31C, any amount received by the player by winning any event, including game, scheme, competition or any other activity or process, which is used for playing by the said player in a further event without withdrawing, shall not be considered as the amount paid to or deposited with the supplier by or on behalf of the said player.”

Through Rules, a middle path has been taken to clarify that GST will be payable on amount deposited with Casinos for Bet not on Gross Bet Amount nor on Gross Gaming Revenue. (as if customer again bet the winning amount, it will not form part of Value for Taxability).

Argument in favour of Rule (from Recommendations of GoM)

In GST, it has been decided that GST will be leviable on Actionable Claims, that's why if GST will be charged only on Gross Gaming Revenue, it indirectly means GST is levied only on Service Part (Profit) not on Actionable claim part (i.e. Prize amount) which is not the intention of the law. Therefore, GST need to be charged on Bet Amount.

Current Position of the Petitions

We will update this article, as when new update come on the issue.

Till 30th October, 2023

Hon'ble HC of Sikkim & HC of Bombay (Goa) has stayed the respective SCNs

Copy of Orders

Hon'ble Sikkim HC
Download PDF • 330KB

Hon'ble Bombay (Goa) HC
Download PDF • 865KB

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Disclaimer: We have taken due care to the best of our knowledge while explaining the provisions surrounding the issue purely for informational/academic purpose. It should not be considered as professional advice or consultancy to be relied upon. While due care has been taken by Fab Gyan in preparing this article, certain mistakes and omissions may creep in. The Fab Gyan or its Author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.

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