Dream Sports, the parent company of India’s online gaming platform Dream11, on Tuesday filed a writ petition in the Bombay High Court challenging a notice issued by the tax authorities alleging evasion of goods and services tax (GST).
As per reports, the tax demand on the company is to the tune of Rs 25,000 crore, the largest indirect tax notice served on any firm so far, but FE could not verify this figure.
Dream Sports challenged the levy of 28% of GST on the face value bets, in a writ petition. It argued that the services provided by the online gaming firm predominantly games of skill, not amounting to betting or gambling, and said the higher levy was violative of Article 141 of the Constitution of India.
According to the petition reviewed by FE, the company challenged the impugned notices seeking to tax the price pool contribution, as an “actionable claim.” It claimed that it’s not a supplier of the actionable claim, hence, there can be no liability of GST.
Further, Dream Sports challenged the notices pertaining to tax the entire contest entry amount, which is the sum total of platform fees on which GST has been discharged and the participants contribution to the prize pool. The petitioner has called it violative of Article 14 on the Constitution.
Dream11 has over 180 million users on its platform. In FY22, it reported a net profit of Rs 142 crore and an operative revenue of Rs 3,841 crore.
The writ petition comes in the backdrop of the Supreme Court staying Karnataka High Court’s ruling, which quashed a GST notice against online gaming company Gameskraft for alleged tax evasion to the tune of Rs 21,000 crore. Last week, Delta Crop was also served a tax notice amounting to Rs 1,140 crore on similar grounds.
The GST Council on August 2 had decided that 28% tax will apply on the full face value of bets, without any distinction between games of skill or chance. Later, the government clarified that the tax will apply only at the entry level, and not at the stage of every bet. Relevant amendments to GST laws were approved by Parliament in the last leg of the monsoon session.
Earlier, Revenue Secretary Sanjay Malhotra had told FE that GST receipts from the burgeoning online gaming industry were barely 2% of its estimated turnover of Rs 85,000 crore in FY23.
The online gaming industry supplying actionable claims and some horse race clubs are currently paying GST at 18% on platform fees/commissions ranging from 5% to 20% of the full-face value, while some horse race clubs are paying 28% on the full-face value.
The government’s contention has been that these actionable claims were always meant to be taxed at 28% on full face value even though legal changes are being carried out now in the case of online gaming.