The Supreme Court today(July 22) continued to hear arguments in a batch of petitions raising the question of law as to whether online gaming platforms could be classified as gambling and therefore, be charged 28% Goods and Services Tax (GST). The Court is also considering the issue whether the GST can be charged on casinos and the platforms on the entire bet amount.
A bench comprising Justice JB Pardiwala and R Mahadevan is hearing a challenge against a 2023 Karnataka High Court order, which ruled in favour of online gaming platform, Gameskraft, against the GST demand notice. It held that an online gaming platform can't be charged with GST applicable on gambling/betting. Against this, the GST Department approached the Supreme Court.
Consequently, the Court transferred to itself all petitions raising similar issues, also in terms of GST applicable on Casinos before it. It stayed all show-cause notices, some of which were time-barred by an order dated January 10.
One Advocate, appearing for two Casinos in Sikkim and Goa, argued that the value of bets put on games in a casino can never be the valuation of the right to win. It is not an entitlement of the casino and therefore, it can't be considered as a 'price' for the supply of goods or services under Section 15(1) of the GST Act.
"The face value of the bet has been said to be the measure on which GST will be charged. The bet value, I say, Mylords, can never be accrued or received by the casino for it to form consideration in any sense...What we are trying to tax is not the bet; what we are trying to tax is a supply of a right to win..."
He explained that there are mainly two kinds of games-one where the players are playing against each other and second is where the player is playing against the house.
In the first game, the casino has no role but to just facilitate the game. He said: "In these kinds of games like poker or three cards, the casino has nothing to do with the bet value. All they are entitled to is the small percentage of what is called as the pot, the one that gets collected in the middle where the bets are placed. A percentage of it comes to the casinos irrespective of who wins or loses. The winner will take loser's money and the casino will redeem a percentage. Therefore, the bet value in these games are neither accrued or received by the casino ever."
Whereas, in the second game, who wins or loses is settled in the casino table, and if there is any loss of amount after the loser has paid to the winner, the casino pays and if there is surplus, the casino takes it. Even in this case, the bet value is neither accrued or received by the casino, the counsel submitted.
"What we are valuing here is the right to win. We are not valuing the bet. We are valuing the right to win, and how the right to win can be valued is what I want to deal with because it is a very different concept from the bet value...As far as the face value is concerned, it already belongs to the winner and nearly returned to the winner."
On this, Justice Pardiwala said: "We get to see that round thing, what is it called? Five individuals, they enter, whatever is the deposit amount, those five, A,B,C,D,E, they want to play this round thing [Roulette]. You, casino, will facilitate the game for them and before they reach that table, they have to by something? Chips or something. You say, first they will have to inter-se decide what is going to be the bet, in the sense, the price money...[If someone wins], who determines the amount?"
Counsel answered that the amount is predecided by the casino according to the probability and it depends on the kind of bet placed. He said: "If I put chip on number 1, there are 36 numbers, so my probability of winning is 1/36. The lower the probability, the higher the winning. There are also colours, red and black. If I have put the chip on black, my probability of winning is 50%...In a game like roulette, the winning figure is predecided on probability. You can bet on single number, or a set of four or eight numbers, or you can bet on colour...If you bet on a single number, your probability of getting that number is very low. There are 36 numbers, it could land up anywhere. So, if you win that, you could get your money 35 times over. If you bet on a colour, you have 50% probability so you will get the same amount as your bet."
Justice Pardiwala asked if it's necessary that one person has to always win. Can there be a case where all persons, who have bet on a number or colour lose? The counsel replied that in such a case, the casino gets the amount and it becomes a part of its revenue.
In the earlier hearing, the Court had asked if the sale of chips can be considered as transactional value in terms of Section 15(1). Answering this, the counsel stated that at the time of sale of chips, there is no right to win which gets created. "Mere exchange of money without any commission or consideration is purely a transactional money and is never liable to GST..."
The hearing will continue tomorrow.
Case Details: DIRECTORATE GENERAL OF GOODS AND SERVICES TAX INTELLIGENCE HQS Vs GAMESKRAFT TECHNOLOGIES PRIVATE LIMITED|SLP(C) No. 19366-19369/2023