Taxman hopes to hit a jackpot in Goa casinos

8 June 2018: The intelligence arm of the indirect tax department has completed notices to 10 of the greatest casinos in Goa for hedging service tax and has simultaneously initiated an investigation. The tax notices allege the casinos must pay service tax on their license fees. Directorate of Revenue Intelligence (DRI) issued 10 notices to the largest casinos asking them to pay tax on license fees for three years from 2014 to 2016. Casinos are needed to pay license fees to the state government to be in business. Some casino masters have challenged the tax demands and taken the subject to court arguing license fees they pay to the government is equivalent to permission and that there is no legal ground for this tax demand.

“Demanding tax on sanctioned license fees is unreasonable. It’s like demanding the tax on passport fees paid to the government. Based on a circular, the DRI has started the investigation for applicability of service tax,” said Abhishek A Rastogi, partner, Khaitan & Co, who recorded a warrant petition in this regard with the Goa bench of the Bombay High Court. The tax notices demanded about 15% tax is applicable to the license fees. As per the tax department’s basis, services provided by the casinos can be categorized as goods as they “reserve the right to enter” for customers.

People in the know tended out that one or two of the casinos have paid the service tax, while others are looking to challenge the tax demand.“Many casinos have paid service tax on the reverse charge basis and hence should not be expected to pay any other indirect tax. Further, since entertainment tax has been subsumed in GST, similar issues may not arise in future,” said MS Mani, partner, Deloitte India. “There needs to be an element of service and quid pro quo for an activity to be taxable,” said Rastogi. Tax experts say no such tax demand has ever been made all these years. Recently in India only Goa, Union Territory Daman, and Sikkim have casinos.