28% GST is applicable on entry to Gaming Zones in malls

GST is a unified, destination based indirect tax. It is imposed on the value added to goods as well as services at each stage of the supply chain. The purpose behind implementing GST was to create a unified market in the country. Therefore, many indirect taxes were subsumed and the tax compliance was reduced to achieve this purpose.

Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 notified the central tax, on the intra-State supply of services. According to point (iii) of Sl No 34 of the said notification, Services by way of admission to entertainment events or access to amusement facilities including exhibition of cinematograph films, theme parks, water parks, joy rides, merry-go rounds, go-carting, casinos, race-course, ballet, any sporting event such as Indian Premier League and the like will be taxed @ 14% CGST.

The above entry was amended and bifurcated in two different entries in respect of amusement parks and amusement facilities. These entries were introduced vide Notification No. 01/2018-Central Tax (Rate) dated 25 January 2018 amending Notification No. 11/ 2017.

Point (iii) of Sl No 34 of Notification No. 11/ 2017 was divided into point (iii) and (iiia) as below:

Point (iii) – Services by way of admission to amusement parks including theme parks, water parks, joy rides, merry-go rounds, go-carting and ballet will be taxed @ 9% CGST
Point (iiia) – Services by way of admission to entertainment events or access to amusement facilities including exhibition of cinematograph films, casinos, race club, any sporting event such as Indian Premier League and the like will be taxed @ 14% CGST

Hence, GST law reduced GST rate on entry to amusement parks. However, will such reduced rate be available on entry to gaming zones? Let us refer to the case of Bandai Namco India Private Limited (GST AAAR Maharashtra), where the issue raised was whether the reduced rate of 9% CGST will be available on entry to gaming zones as it is available on entry to amusement parks.

Facts of the Case

Bandai Namco Entertainment Inc (BNEI) is a Japanese video game development company and publisher.
The Indian arm is operated by means of a private company set-up under the Companies Act, 1956 bearing the name of Bandai Namco India Private Limited (BNIPL).
The Company provides family entertainment centres built on Japanese standards of safety. The Company offers arcade games and other attractions, mainly based around Pac-Man and Ghostly Adventures themes.
The Company for its business operations, has stationed various gaming equipment and machines for different age groups, consisting of kids, teenagers and adults.
Prior to the inception of GST in India, they were registered under the provisions of Service Tax Law vide Chapter V of the Finance Act 1994 and discharged Service Tax at 15%.
They were also registered under the provisions of Bombay Entertainment Duty Act, 1923 (Bombay Entertainment Act) and paid applicable entertainment tax on the activities undertaking in the gaming zone.
With the inception of GST in India, both the erstwhile indirect taxes i.e. service tax and entertainment tax were subsumed and the Company was liable to pay GST on its activities as it qualifies as supply of service as per Notification 11/2017-Central Tax (Rate) dated 28 June 2017 (effective 1 July 2017).
With the advent of GST Notification 01/2018, which reduced the GST rate on services by way of admission to amusement parks including theme parks, water parks, joy rides, merry-go-rounds, go-carting and ballet, appellant sought Advance Ruling to determine the applicable rate of GST on the services/ activities of the Company.

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Ruling of Authority of Advance Ruling (AAR)

The Authority of Advance Ruling (AAR) mentioned the Wikipedia definition of amusement park wherein they have tried to rely on few below mentioned analogies for analysing the difference between ‘amusement park’ and ‘amusement facility’:
1. An amusement park has multitude of attractions such as rides, games and other events whereas, an amusement facility offers singular attraction by way of gaming machines.
2. Amusement park is spread over a large area of land whereas, an amusement facility is spread over limited area/ closed area.
3. Amusement park may contain other auxiliary facilities like food court, lodging facilities however, there is no scope for the same in case of an amusement facility.
Basis this they cited that an amusement park is generally a big open area, containing various amusement facilities within, which may be under covered premises however, amusement facility of the Company is relatively very small covered/ closed premises.
AAR contended that amusement facilities and amusement parks were fundamentally different.
The amusement facility by deploying gaming machine cannot qualify as an amusement park.
The services by way of access to gaming zone, operated by the Appellant would attract GST at 28% in terms of the Sr. No. 34(iiia) of the Notification No. 11/2017 -Central Tax (Rate) dated 28.06.2017 amended by Notification No. 01/2018-C.T. (Rate) dated 25.01.2018.

Observations of AAAR on whether the gaming zone could be construed as amusement park or amusement arcade

The issue before the AAAR was to determine whether the gaming zone operated by the Appellant in the mall could be construed as amusement park, thus attracting a lower GST rate
For the said purpose, AAAR set out to examine the term “amusement park” and “amusement facility”, and their applicability in the context of the operations carried out by the Appellant.
The terms “amusement park” and “amusement facility” were not defined in the GST Acts.
Hence, AAAR was compelled to resort to other relevant statutes and sources such as various Dictionaries, so as to comprehend the meaning of aforesaid terms.
The term “amusement facilities” were defined in section 65(B)(9) of the Finance Act, 1994.

According to the said Act, “amusement facility” means a facility where fun or recreation is provided by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks, theme parks or such other places but does not include a place within such facility where other services are provided.

To understand the above definition of the term “amusement facility”, AAAR referred to the meaning of terms “amusement park” and “amusement arcade”, which were used in the aforesaid definition.

The term amusement park was defined under various dictionaries as given below:
1. As per dictionary reference.com – A large park equipped with such recreational devices as a merry-go-round, Ferris wheel, roller coaster, etc., and usually having booth for games and refreshments.
2. As per section 2 of the Bombay Entertainment Duty Act – a place wherein various types of amusements including games or rides or both [but excluding exhibition by cinematograph or video exhibition] are provided fairly on permanent basis, on payment for admission.
3. As per Webster Dictionary – a commercially operated park having various devices for entertainment (as a merry-go-round and roller coaster) and usually booths for the sale of food and drink.
4. As per Wikipedia – An amusement park is a park that features various attractions, such as rides and games, as well as other events for entertainment purposes.
Since the term “amusement arcade” was defined in GST Act or any other statute, AAAR resorted to its meaning provided by various dictionaries.
1. As per Oxford Dictionary – an indoor area containing coin operated game machines.
2. As per Wikipedia – a venue where people play arcade games such as video games, pinball machines, electro-mechanical games, redemption games, merchandisers (such as claw cranes), or coin-operated billiards or air hockey tables

After going through the aforesaid meanings of the “amusement park” and “amusement arcade”, as provided in various dictionaries and Wikipedia, it was opined that the gaming facilities and various amusement rides offered by the Appellant would be construed as amusement arcade, and not the amusement park as all the amusement rides and games are located in the covered premises or area inside the mall as envisaged under amusement arcade.
It was also categorically submitted by the Appellant that they offered arcade games.
On the contrary, the amusement park mainly consisted about rides like merry-go-round, Ferris wheels, roller coaster, etc. which can only be installed and operated in the large open field, and not in the closed premises as in the case of the Appellant.
Further, it was also gathered that theme parks as well as water parks were considered as types of amusement park only with their own specific characteristic features and attraction.
Again, the theme parks and water parks could not be set up in the closed premises such as the one where the Appellant had set up its gaming zone.
These can be set up only in the large open space.
Thus, it was established beyond doubt that the gaming zone operated by the Appellant in the closed premises of mall was not the amusement park but the same can more reasonably be envisaged as amusement arcade.

Observations of AAAR on what is the applicable rate on the services provided by the appellant

AAAR referred to the Notification No. 11/2017 -Central Tax (Rate) dated 28.06.2017 as amended by the Notification No. 1/2018-C.T. (Rate) dated 25.01.2018, where it was seen that entry (iii) talks about the amusement parks including theme parks, water parks, joy rides, merry-go rounds, go-carting and ballet.
On a plain reading of this expression of entry (iii) and applying the rule of legal interpretation, it could be inferred that the said entry does not talk about the fun or recreation in the nature of the arcade games as is in the present case of the Appellant.
Hence, it could be concluded that the aforesaid entry (iii) did not cover the activities of the Appellant.
On the other side, the entry (iiia) of the amended Notification No. 11/2017 -Central Tax (Rate) dated 28.06.2017 squarely covered the Appellant’s activities as the gaming zone operated by the Appellant in the mall’s closed premises was nothing but the amusement facilities as per the definition of the amusement facility provided under section 65(B)(9) of Finance Act, 1994.
Applying the provision of the aforesaid definition of the amusement facility in the present case, it was revealed that the provision of the fun or recreation by the Appellant by means of amusement rides and gaming devices deployed in the covered area of the mall premises, which could be construed as amusement arcade as has been established above, was nothing but the amusement facility.

In view of the above findings, it was clear that the gaming zone operated by the Appellant in the mall would be covered by entry (iiia) of Sr. 34 of the Notification No. 11/2017 -Central Tax (Rate) dated 28.06.2017 as amended by the Notification No. 1/2018 -C.T. (Rate) dated 25.01.2018, and would accordingly attract GST at rate of 28% (CGST @14% + SGST@14%).

Therefore, as gaming zone is not the same as an amusement park. The benefit of lower GST rate which is available to an amusement park will not be available to entry to a gaming zone and the same will be taxed @ 28%

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