'GST Is Tax On Supply, Not Profits' : Why Supreme Court Rejected Casino's Plea That Tax Liability Is On Net Outcome After Games

While holding that the Goods and Services Tax (GST) would be made applicable to online gaming, fantasy sports, and other games played in virtual settings that involve stakes upon uncertain outcomes, the Supreme Court has also dealt with an issue regarding the correctness of the Gross Gaming Revenue (GGR) taxability model used by the Casinos while determining their GST liability.

During the hearing, it was argued on behalf of the Casinos that GST should be levied only on Gross Gaming Revenue (GGR), i.e., the amount ultimately retained by a casino after deducting winnings paid to players. They argued that if players won amounts exceeding their bets, then there would effectively be no taxable consideration.

Rejecting the Casinos' stand, a bench of Justice JB Pardiwala and Justice R Mahadevan held that GST would be payable not on the net financial outcome at the end of a gaming cycle, but right from the moment the player is permitted to participate in the gambling activity. "The supply involving such actionable claims therefore constitutes the taxable event under the CGST framework.", the court said.

“…the entire foundation of the GGR methodology proceeds on an erroneous understanding of the taxable event under the GST regime. GST is attracted upon a taxable supply and not upon the profitability of the supplier. The levy does not fluctuate depending upon whether the supplier ultimately earns profits or suffers losses in the course of business operations. Consideration arises the moment a player places a bet upon an uncertain outcome for participation in the gambling activity conducted by the Casino. The taxable event crystallises when the player is permitted to participate in the gambling activity upon placing bets through chips or tokens…The Casinos, however, seek to determine their tax liability based upon the net financial outcome at the end of a gaming cycle by adjusting winnings against losses. Such a methodology is fundamentally incompatible with the structure of GST and is not contemplated.”, the judgment authored by Justice Mahadevan observed.

The Court clarified that the GST is levied on the occurrence of a taxable supply and not on the profits earned by the supplier; therefore, the moment the bet is placed either directly or by purchasing the chips or tokens, the taxable event occurs.

"The contention that no supply or actionable claim arises merely because casino transactions are conducted through chips or tokens also cannot be accepted. A player cannot participate in casino gaming without first placing bets through chips or tokens purchased within the casino ecosystem. The chips or tokens merely constitute the medium through which bets are placed within the casino environment. The taxable event arises when a player stakes such amount upon an uncertain outcome in the course of betting and gambling activities conducted by the Casino.", the court observed.

The Court's observation was based on the premise that if the consideration which is left out by the Casinos', forms a taxable event for the purpose of determining the GST liability then it would be safely used by the Casinos' to mitigate or conceal their tax liability, which would otherwise be not possible when the taxability is determined based on the placing of bet by the player, which according to the Court, supports the levy of GST on taxable supplies but profits.

“Where a player loses the amount staked by him, the Casinos themselves admit that the amount retained constitutes consideration. However, where another player succeeds and wins a larger amount, the Casinos contend that no consideration exists since the Casino has suffered a loss. The inevitable consequence of this submission is that the existence of consideration becomes contingent upon the outcome of the game. Such a proposition cannot be accepted in law.”, the court observed.

“The gambling activity conducted by the Casino remains identical irrespective of whether a player wins or loses. The subsequent adjustment of winnings or payouts therefore cannot obliterate the taxable supply already completed upon participation in the gambling activity.”, the court added.

Also From Judgment: Supreme Court Upholds Levy Of GST On Online Gaming, Says Its Taxable As 'Betting & Gambling'

Cause Title : DIRECTORATE GENERAL OF GOODS AND SERVICES TAX INTELLIGENCE HQS Vs GAMESKRAFT TECHNOLOGIES PRIVATE LIMITED | SLP(C) No. 19366-19369/2023 (with connected cases)

Click Here To Read/Download Judgment

Appearances - Senior Advocates Tarun Gulati, K. Parameshwar, Harish N. Salve, V. Sridharan, Sajan Poovayya, Balbir Singh, Abhishek Malhotra, Sanjay Jhanwar, Jay Savla, Vivek Reddy, Arvind Datar, Gopal Sankaranarayanan, Rupesh Kumar, Abhishek Manu Singhvi, Vikram Nankani and Kapil Sibal.

Senior Advocates Sajan Poovayya, Harish N. Salve, V. Sridharan, Dhruv Mehta, C.A. Sundaram, Mukul Rohatgi, Vivek Reddy, Neeraj Kishan Kaul, Abhishek Manu Singhvi, Gopal Sankaranarayanan, Rakesh Dwivedi and Abhisek Malhotra.

Tushar Mehta, Solicitor General, and N. Venkataraman, Additional Solicitor General.

 Advocates-on-Record : Surbhi Mehta, Anzu K. Varkey, Rohini Musa, Shashank Tripathi, S.S. Shroff, Aaditya Aniruddha Pande, Dcosta Ivo Manuel Simon, Charanya Lakshmikumaran, Shyam Gopal, Amrita Kumari, Rajiv Kumar Virmani, Mukesh Kumar Maroria, E.C. Agrawala, Naveen Hegde, Anushree Prashit Kapadia, Pritha Srikumar Iyer, M/s PLR Chambers and Co., Aneesh Mittal, Rajeev Gulani, Devansh Srivastava, D.L. Chidananda, Gurmeet Singh Makker, Srishty Kaul, Sonali Jain, Yoothica Pallavi, Siddhant Buxy, Rajat Mittal, Pranay Shridhar Chitale, Bharat Gupta, Anand Varma, Sabarish Subramanian and M/s Dharmaprabhas Law Associates.

Shubhranshu Padhi, Tarun Dua, Akhil Anand, Charanya Lakshmikumaran, Pritha Srikumar Iyer, E.C. Agrawala, Bhakti Vardhan Singh, Aaditya Aniruddha Pande, Mukesh Kumar Maroria, Gurmeet Singh Makker, Surbhi Kapoor, Misha Rohatgi, Madhumita Bhattacharjee, Samar Vijay Singh, Sravan Kumar Karanam, Sujoy Chatterjee, Sahil Bhalaik, D.L. Chidananda, Akshay Amritanshu, M/s PLR Chambers and Co., Vinod Kumar Tewari, Aanchal Tikmani, Pranav Sarthi, M/s AP & J Chambers and Dcosta Ivo Manuel Simon