Sikkim High Court asks DGGI to not take any further action in Delta Corp’s Rs. 628 crore GST show cause notice

 The Sikkim High Court has temporarily halted a Rs 628 crore GST demand order against Delta Corp, a casino and online gaming company.

PTI, October 22, 2023: The Sikkim High Court has granted a stay on about Rs 628 crore GST demand order against Delta Corp, the casino and online gaming company said in a regulatory filing on Sunday. The government has raised a total GST demand of around Rs 23,000 crore against the company till date which includes recovery of the shortfall of taxes for casino and online gaming business of the Delta Corp group.

The Directorate General of GST Intelligence, Hyderabad on September 22 issued three demand notices against the company including a demand of over Rs 628 crore for the shortfall of tax paid by Delta Corp Limited in relation to Casino Deltin Denzong based out of Sikkim.

"Pursuant to a writ petition filed by the Company before the Hon'ble High Court of Sikkim challenging the above demand, the Hon'ble High Court has by its order dated 20th October 2023 ordered status quo to be maintained in respect of the demand until the date of next hearing," Delta Corp said in the filing.

Besides casinos, Delta Corp through its online gaming subsidiary Deltatech Gaming runs online real money games like poker, rummy, cricket etc.

In its financial performance note on October 11, Deta Corp mentioned that the company and its two subsidiary companies have received show cause notices for alleged short payment of Goods and Service Tax (GST) aggregating Rs 16,822.98 crores for the period from July 1, 2017, to March 31, 2022.

The company on October 14 updated stock exchanges that its subsidiary Deltatech Gaming Limited has received intimation from the Directorate General of GST Intelligence, Kolkata for payment of Rs 6,236.81 crore for theshortfall in taxes for the period between January 2018 and November 2022 and Rs 147.51 crore for period between July 2017 to October 2022.

The recent notice takes the total GST demand against the company to over Rs 23,200 crore.

Delta Corp during the second quarter ended September 30, 2023, has posted a 1.7 per cent increase in its consolidated net profit to about Rs 7 crore and about 3.4 per cent increase in income from operations at Rs 283 crore.

Agencies: A single judge bench of the Sikkim High Court comprising of Justice Bhaskar Raj Pradhan on 20th October issued notice on the interim application of listed casino and gaming company Delta Corp Limited challenging the show cause notice dated 27th September, 2023 asking Deltin Denzong, Gangtok, Sikkim to pay Rs. 628 crores as Goods and Services Tax (GST) at the rate of 28% on the full face value of bets for the period July 2017-March 2022.

The show cause notice issued to Deltin Sikkim was part of the larger set of show cause notices issued to the company and its subsidiaries in September-October 2023 totaling to over Rs. 23,000 crores, which is many times more than its reported revenue for the said period.

In its writ petition filed before the Sikkim High Court, Delta Corp had challenged Rule 31A of the Central Goods and Services Tax Rules, 2017, Section 15(5) of the Central Goods and Services Tax Act, 2017, besides challenging certain other circulars, clarifications and rate notifications issued by the Central Board of Indirect Taxes and Customs (CBIC).

During the course of the hearing of the writ petition yesterday, Senior counsel representing Delta Corp flagged the absurdity of the demands raised by the Directorate General of Goods and Services Tax Intelligence (DGGI) based on Rule 31A, which mandates that GST be charged on the full face value in case of chance to win in gambling and betting.

Besides highlighting the practical impossibility of following this rule, Senior counsel contended that there was a “nonsensical proposition” envisaged in Rule 31A and it would be practically impossible to deduct 28% tax before betting on each hand of blackjack or each spin of the roulette wheel. Senior counsel also submitted that before the GST-regime, entertainment tax was imposed on Gross Gaming Revenue (GGR) on casinos in both Goa and Sikkim, i.e., the two states where the activity is permitted.

The senior counsel explained the concept of GGR, which is the bets placed, minus the winnings paid out to customers, i.e., the earnings or revenue of the casino. He further contended that players making bets would not constitute supply of goods or services under the GST regime and GST on gambling and betting cannot be imposed.

Senior counsel also mentioned that various representations were made by All India Gaming Federation (AIGF) and other bodies pointing out the absurdity in the logic of taxing face value of bets, and there was significant discussion between various stakeholders and the taxation department on the manner of valuation and taxation in case of casinos, over the last few years.

The Sikkim High Court after hearing Senior counsel submissions issued notice to all parties on the interim application and asked the Union of India, DGGI, State of Sikkim and GST Council, among other respondents, asking them to file their replies within two weeks.

Justice Pradhan further ordered that status quo as on today should be maintained by the respondents with regard to the show cause notice, indicating that no precipitative or coercive action should be taken against Delta Corp in the meanwhile. The matter is further fixed for hearing on 5th December, 2023.

Meanwhile, Delta Corp and its subsidiaries Highstreet Cruises and Entertainment Private Limited and Delta Pleasure Cruise Company Private Limited have also filed similar writ petitions before the Goa bench of the Bombay High Court challenging the over Rs. 16,000 crore showcause notices issued to its casinos in Goa. The petitions are slated to come up for hearing on Monday, 23rd October, 2023 before a bench of Justices MS Sonak and Bharat P. Deshpande.