About six months ago, the indirect tax department issued notices to Goa based casinos about GST being charged on their license fee. Some casinos took the matter to court and the Goa bench of the Bombay High Court made the demand while hearing a writ petition filed by some Goan casinos challenging federal taxes on state licence fees. Bombay High Court has asked the department to explain why licence fees for operating a casino should be treated differently from liquor licence fees.
The tax authorities sought an exaction of service tax on reverse charge basis on license fees paid to the Goa government by casino operators. The tax department asked the biggest casinos to pay tax on licence fees for three years from 2014 to 2016 after the indirect tax department in January this year had issued notice to all 10 of them. This matter puts spotlight on tax ability of government services once again.
Post receiving these notices, some casinos challenged the rationale behind the notices.They argued that the licence fees are nothing but a statutory levy and not fees for services rendered by the state government. Consequently, such fees should be outside the scope of service tax. Abhishek A. rastogi, partner at Khaitan & Co., argued for the petitioners. He said, “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.”
There was a similar case filed by liquor companies, challenging the GST demand on license fees, in the Delhi High Court and the court ruled that there was already a clarification by the GST Council in the context of liquor licence fees, stating that such license fees are outside the scope of goods and services tax levy. This is a contentious issue as the government charges significant licence fees in sectors like telecom, mining, and oil & gas, and if it demands service tax/GST on these licence fees that will have major impact on these sectors. Even services like passport, visa and driving licence can be under service tax purview.
Experts question whether the government can charge a fee for carrying out a sovereign function of the state, and also the taxability of such services rendered. “Where the essential reason for non-taxability is on the argument of the same being a sovereign function, to ensure uniformity, the government should issue detailed clarifications on the scope of sovereign functions of the government,” said Abhishek Jain, tax partner at EY.