The Supreme Court Today (Jan 10) paused GST proceedings against 49 online gaming companies over retrospective tax demands totaling Rs 2.3 lakh crore. The gaming industry challenges the 28% GST levied on the full face value of bets, arguing it should be based on Gross Gaming Revenue (GGR). The case raises critical questions about whether games like Rummy are games of skill or chance, with significant implications for the sector’s future. The hearing is scheduled for March 18, 2024.
Thank you for reading this post, don't forget to subscribe!
NEW DELHI: The Supreme Court of India today paused all Goods and Services Tax (GST) proceedings against 49 online gaming companies. These proceedings were based on retrospective demand notices issued for taxing the total value of bets placed through their platforms.
A Bench comprising Justices JB Pardiwala and R Mahadevan granted this stay at the request of the GST department.
The case has been scheduled for further hearing on March 18.
Additional Solicitor General (ASG) N Venkataraman, representing the GST department, argued that some show-cause notices were set to expire in February.
He further explained,
“Not staying these proceedings could harm the Revenue’s interests.”
On October 1, 2023, the GST Council imposed a 28% tax on the full face value of bets placed on online gaming platforms. The Council also promised to review this tax rate after six months. However, the gaming industry has been vocal about its opposition, urging authorities to calculate the tax on Gross Gaming Revenue (GGR) instead. GGR refers to the total bets placed minus winnings, whereas the full face value represents the total amount staked or the contest entry fees.
Gaming companies argue that-
“Taxing the full face value is unfair since users already pay 28% GST on every deposit.”
They worry this approach could make online gaming expensive and limit its accessibility.
As of December 2023, 71 show-cause notices were issued to online gaming companies, accusing them of GST evasion amounting to Rs 1.12 lakh crore during 2022-23 and the first seven months of 2023-24. Excluding interest and penalties, this figure is already significant. The notices, issued under Section 74 of the GST Act, allow penalties of up to 100% of the tax demand. This could raise the total liability, including penalties and interest, to over Rs 2.3 lakh crore.
Currently, 49 petitions by online gaming companies challenging the retrospective GST notices are pending before the Supreme Court. These notices demand payments running into thousands of crores, calculated at 28% on the total value of bets placed.
To offset the tax burden, some platforms are absorbing GST costs either partially or entirely, but this is seen as unsustainable. The situation worsened when the GST Council applied the tax retrospectively, mandating a 28% levy on all bets placed from August 2017 to October 1, 2023. According to the GST Council,
“All these bets, whether from games of skill or chance, fall under the gambling category.”
A significant case involved a GST intelligence unit issuing a show-cause notice to Gameskraft Technology in September 2022. It alleged that the company owed Rs 21,000 crore in GST for transactions between 2017 and June 30, 2022—the largest claim in India’s indirect taxation history. Gameskraft was accused of enabling online betting through platforms like Rummy Culture, Gamezy, and Rummy Time, and failing to issue proper invoices. Authorities imposed a 28% tax on approximately Rs 77,000 crore in betting volume.
This case raised critical legal questions, such as whether Rummy qualifies as a game of skill or chance and whether Gameskraft’s operations involved actionable claims subject to taxation. The company contested the notice in the Karnataka High Court, which ruled in its favor. The Court held that-
“Rummy is a game of skill”
and that Gameskraft was not involved in supplying actionable claims. Consequently, the GST notice was invalidated.
This ruling was a significant setback for the GST department, which directly appealed the decision to the Supreme Court, bypassing the Karnataka High Court’s division bench. At the Supreme Court, ASG Venkataraman argued,
“The High Court’s judgment created obstacles by halting action on at least 35 similar show-cause notices.”
On the first day of the hearing in September 2023, the Supreme Court stayed the Karnataka High Court’s ruling, explaining that “We do not want other courts to use this as a precedent.”
Prominent legal experts represented the petitioners, including Senior Advocates Harish Salve, Dr. AM Singhvi, Sajjan Poovayya, Dhruv Mehta, and Gopal Sankaranarayanan.
Advocate Charanya Lakshmikumaran, partner at Lakshmikumaran & Sridharan, was also part of the legal team. Advocate Shyam Gopal represented Winzo Games.
CASE TITLE:
Gameskraft v. GST.
Click Here to Read Previous Reports on Online Gaming Companies
FOLLOW US ON YOUTUBE FOR MORE LEGAL UPDATES
