The Supreme Court on Friday stayed show-cause notices issued by GST authorities demanding over Rs 1 lakh crore from online gaming companies and casinos. These notices were based on retrospective tax demands calculated on the full face value of bets placed on their platforms, Bar and Bench reported.
A bench of Justices JB Pardiwala and R Mahadevan observed that the matter required detailed hearing. Additional Solicitor General N. Venkataraman, representing the GST department, contested that some notices would conclude by February and not halting them could adversely impact the Revenue’s interests. The court then scheduled the next hearing for March 18.
What’s the issue and how much money is at stake?
The GST Council on October 1, 2023 imposed a 28% tax on the full face value of bets placed on online gaming platforms. The tax applied retrospectively, covering transactions from August 2017 to October 1, 2023. Gaming companies challenged the decision, advocating for taxation based on gross gaming revenue (GGR) — the total wagered amount minus winnings — rather than the full face value — total bet amount or contest entry fee.
They argued that taxing the full face value is inequitable since players are already subject to 28% GST on each deposit. This approach could render online gaming platforms prohibitively expensive and hinder accessibility for users.
By December 2023, online gaming companies were grappling with 71 show-cause notices accusing them of GST evasion amounting to a staggering Rs 1.12 lakh crore for 2022-23 and the first seven months of 2023-24. The notices, issued under Section 74 of the GST Act, further allowed the authorities to levy penalties of up to 100% of the tax demand, Bar and Bench reported. This could potentially push the total liability to a colossal Rs 2.3 lakh crore, including interest.
Over 40 petitions filed by online gaming companies are currently pending before the Supreme Court, challenging the retrospective application of this tax.
Online gaming industry’s reaction to stay order
The industry welcomed the Supreme Court’s stay order. The E-Gaming Federation (EGF), representing major online rummy and poker operators, called it a significant step for the growth of skill-based gaming in India’s digital economy. “A progressive decision like this paves the way for skill gaming to flourish and contribute to India’s growing digital economy,” the skill gaming industry body wrote in a LinkedIn post.
WinZO Games co-founder Saumya Singh Rathore also expressed optimism and emphasised the need for regulatory clarity. “A fair resolution will not only provide clarity but also accelerate innovation, job creation, and investor confidence,” MoneyControl quoted her as saying. Rathore also highlighted the potential for the gaming industry to create over five decacorns and 10 unicorns in the next five years.
Challenges remain for the industry
Many online gaming platforms have been absorbing GST costs partially or fully currently, but this strategy is unsustainable in the long run. The retrospective tax has further strained the industry, requiring companies to pay significant sums for past transactions. The GST Council considers all bets during the specified period as falling under the gambling category, regardless of whether the games are based on skill or chance.
Rummy debate: Skill or chance?
A significant case involving Gameskraft Technology further sheds light on the debate surrounding games like rummy. In September 2022, GST authorities issued Gameskraft a Rs 21,000 crore notice, accusing the company of promoting betting and failing to issue invoices to users. Authorities imposed a 28% tax on approximately Rs 77,000 crore in betting volumes.
Gameskraft contested the notice in the Karnataka High Court, which ruled in its favor. The court said that rummy is a game of skill and not gambling, thus invalidating the GST notice.