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It has been tax-heavy for the casino industry in Goa this year that was struck by the Directorate of Revenue Intelligence (DRI) notice early in March, asking 10 casinos to pay tax on their license fee from 2014 to 2016 and a 15% GST.
Goa casinos are already reeling under the shock of a big annual license renewal fee hike, announced in March-end. However, legal relief looks well in sight, now that the Bombay High Court has directed the DRI to justify the introduction of additional service fees.
Hearing the writ petition filed with the Goa bench of the Bombay High Court by attorney Abhishek A Rastogi, partner at Khaitan & Co., the High Court asked the DRI why the license fees for operating a casino should be treated differently from liquor license fees.
“Demanding tax on statutory license fees is absurd. It’s like demanding a tax on passport fees paid to the government. Based on a circular, the DRI has initiated an investigation for applicability of service tax,”Rastogi said, talking about the petition.
He added, “The issue is expected to be pragmatically resolved by the GST Council, as has been the past experience. The repercussions of the unresolved issue are very serious and huge impact could be on other activities.”
The DRI in its notice had claimed that in addition to their license fee, casinos need to pay service tax to run their business. The DRI also demanded that since services offered by casinos can be categorized as ‘goods’ as the casinos ‘reserve the right to enter’ for customers, they are liable to pay a 15% GST. Several casinos complied with the diktat but others took the matter to court.
Adding to their burden was the exorbitant hike in casino licensing fees in different categories, announced by the state government on March 27. The revised fee structure was effective on April 1, 2018. Different fee submissions ranging from the fees charged for new license, license renewal, application and security deposits were increased. In some cases, the fee was increased by 4.5 times from last year. The state refused to buckle under pressure from casino operators to partially rollback the fee, forcing two casinos, Crown and Carnival to shut operations.
Notably, in a similar case by liquor companies challenging the service tax or GST demand on license fees, the Delhi High Court has ruled that there was already a clarification by the GST Council in context of liquor license fee, stating that such license fees are outside the scope of the goods and services tax levy.
The issue remains contentious and whether the government can charge a fee for carrying out a sovereign function of the state, and the taxability of such services is debatable.