GST

GST Council to issue a clarification on Gaming Industry, Casinos, and Racecourses

The online gaming industry, casinos, and racecourses in India have long been in a state of debate for the levy of GST.

GST Council will issue a Clarification for Gaming Industry

As per a recent Maharashtra Authority of Advance Ruling (AAR) ruling, online games are taxed under the GST regime as online information and data-based access or retrieval services (OIDAR), even if the cloud is situated outside of India. However, it is debatable whether modern games like Dream 11, which provide fantasy sports gaming services, qualify as a skill game or gambling.

While the government acknowledged the problem, it submitted it to the GST Council, the top decision-making body for indirect taxes, which in turn formed a Group of Ministers (GOM) for the purpose. The GOM is evaluating if any changes to legal requirements are required for the valuation of services offered by online gaming, racing courses, and casinos. It will also look into the taxability of specific casino transactions in relation to current law provisions and court rulings.

Now, the GST Secretariat has asked the GST Council to offer clarification on the GST rate and the imposition of the tax on these services. This is a big step for the country’s online gaming industry, casinos, and racecourses.

This is in response to an instruction, or an order issued by the Punjab and Haryana High Court. Lately, the Punjab and Haryana High Court issued a stay order prohibiting any GST enforcement action against tax evasion until the GST Council offered clarification on the GST rate and the applicability of the tax on certain services such as online gaming, casinos, etc.

The move follows when the Directorate General of GST Intelligence (DGGI) has issued many notices of tax demand and also conducted several search and survey activities against a number of players operating in the online gaming industry, casinos, and racecourses. The DGGI is the law enforcement agency existing under the Ministry of Finance and is responsible for combating tax evasion in India.

In view of the above and following the Punjab Haryana High Court’s judgment, the GST Secretariat has urged the 8-member Group of Ministers (GOM) to expedite their proposals. The GST Council had constituted a GOM on the subject, led by Gujarat Deputy CM Nitin Bhai Patel, which was formed in May and with a 6-month deadline to make recommendations. In June, the GOM was reorganized. Furthermore, Goa has a significant role to play in this because the casino industry has been asking the Goa government to urge the GST council to clarify the matter.

Similar to the Punjab Haryana High Court^[1] case, the casino business has filed a case in the Mumbai High Court disputing an erroneous GST Demand notice, which is still pending.

In a decision issued on September 29, the Punjab and Haryana High Court stated that no punitive action should be taken by GST authorities to recover GST from online gaming companies until the time the GST Council provides clarity. This was in response to an application filed by WITZEAL, an online gaming company that had undergone an investigation and search enforcement action by the GST enforcement agency for tax evasion. WITZEAL, the petitioner, had disputed the GST authorities’ inquiry procedures against recovery and had complained about coercive measures. The company had filed a lawsuit against the state GST authorities, who had wanted payment of tax on the entire bet amount rather than just the commission or processing fees, as well as recovery of the tax amount.

The taxation of online gaming has been a source of debate. According to experts, companies engaged in online gaming, casino, lotteries, and racing face a dilemma due to statutory prescriptions governing valuation, as they are required to charge GST on the entire bet amount, even if the commission or processing charges are a small proportion of the actual bet amount.

The GST authorities have issued multiple notices for search and survey activities in respect of tax evasion to the online gaming business, casinos, and horse racing institutions such as Delta, Strike Casino, and others.

The decision to postpone the investigation until a clarification from the GST Council is received will bring a breath of peace to not only other online gaming enterprises but also other companies in many sectors who are facing harsh investigations with the danger of punitive recovery.

Takeaway

GST authorities are now obligated by a recent Punjab and Haryana High Court judgment to refrain from taking any further action until the GST Council issues clarification on the levy of GST.

The decision focuses on online gaming businesses, which have seen an increase in user bases and service consumption since the covid outbreak, despite ambiguities in service valuation and taxability. It has to be seen how quickly the GST council provides clarification and whether or not these tax demands lying pending are acceptable.

Read our article:Is blocking of ITC by the GST Department legal – Rule 86A?