The Supreme Court’s decision to stay the GST proceedings provides a temporary reprieve for online gaming companies
The Supreme Court has temporarily halted Goods and Services Tax (GST) proceedings against 49 online gaming companies, following a request from the Centre. This decision comes in response to retrospective GST demand notices that were issued on the full-face value of bets placed on their platforms.
A Bench comprising Justices JB Pardiwala and R Mahadevan granted the stay and scheduled a hearing for March 18, 2025. The GST department had sought the stay to protect the Revenue’s interests, especially since some show-cause notices are due to run their course in February.
Background: GST Taxation on Online Gaming
On October 1, 2023, the GST Council imposed a 28% tax on the full-face value of online gaming bets. This controversial move was met with resistance from the gaming industry, which advocated for the tax to be based on Gross Gaming Revenue (GGR)—which represents the amount wagered minus winnings. In contrast, the full-face value includes the total bet amount or contest entry fee, a factor that gaming companies argue is unfairly punitive.
The tax on the full-face value has significantly impacted online gaming platforms, with users being required to pay 28% GST on every deposit. This policy could make online gaming platforms more expensive and less accessible to the public, raising concerns within the industry.
Retrospective Taxation and Show-Cause Notices
As of December 2023, 71 show-cause notices had been issued to online gaming companies, alleging GST evasion amounting to ₹1.12 lakh crore for the fiscal year 2022-23 and the first seven months of 2023-24. These notices, issued under Section 74 of the GST Act, could lead to penalties up to 100% of the tax demand, making the total potential liability exceed ₹2.3 lakh crore, including interest and penalties.
The notices primarily demand payments calculated at 28% GST on the full face value of bets placed on gaming platforms. Many online real-money gaming companies have challenged these retrospective demands in the Supreme Court, with over 40 petitions currently pending.
Gameskraft Technology: A Landmark Case
A major case in this context involves Gameskraft Technology, which received a show-cause notice in September 2022. The GST authorities alleged that Gameskraft failed to pay ₹21,000 crore in GST, marking the largest claim in India’s indirect tax history. The notice covered the period between 2017 and June 30, 2022, and was based on the assumption that the company facilitated online betting through games like Rummy and Gamezy.
The authorities imposed a 28% tax on a betting volume of approximately ₹77,000 crore. However, Gameskraft contested the notice, claiming that Rummy is a game of skill, not chance, and that the company did not engage in activities constituting actionable claims. The Karnataka High Court ruled in favor of Gameskraft, invalidating the GST notice. However, the GST department appealed this decision directly to the Supreme Court, bypassing the division bench of the Karnataka High Court.
GST Department’s Appeal to the Supreme Court
At the Supreme Court, Additional Solicitor General (ASG) N Venkataraman, representing the GST department, argued that the Karnataka High Court’s judgment created challenges by halting action on several similar notices. In September 2023, the Supreme Court stayed the High Court’s ruling, preventing other courts from using it as a precedent.
Legal Representation and Ongoing Developments
The ongoing legal battle has seen representation from some of India’s top legal minds. Senior Advocates Harish Salve, Dr. AM Singhvi, Sajan Poovayya, and Gopal Sankaranarayanan have represented the petitioners, while Advocate Charanya Lakshmikumaran from Lakshmikumaran and Sridharan is also involved. Additionally, Winzo Games has been represented by Senior Advocate Abhishek Malhotra, and the All-India Gaming Federation is represented by Senior Advocate Dhruv Mehta, along with Pritha Srikumar and Abhyudaya Shishodia from Keystone Partners.
Conclusion
The Supreme Court’s decision to stay the GST proceedings provides a temporary reprieve for online gaming companies, but the outcome of this case could have long-lasting implications for the industry. With the matter scheduled for further hearing in March 2025, the gaming sector will be closely watching the developments, especially as the legal battle over GST on online gaming continues to unfold.
Key Takeaways
- The Supreme Court has stayed GST proceedings against online gaming companies.
- A 28% GST on the full-face value of bets was imposed in October 2023.
- The gaming industry challenges the tax, advocating for a focus on Gross Gaming Revenue (GGR) instead.
- Show-cause notices have alleged GST evasion of over ₹1 lakh crore.
Major cases, like the Gameskraft case, have raised legal and tax-related concerns.
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