SC stays GST notices served on gaming companies, defers hearing to 18 March

The Supreme Court on Friday directed a stay on Goods and Services Tax (GST) proceedings against 49 online gaming companies against whom the tax authorities have issued show-cause notices demanding GST on the full face value of bets placed through their gaming portals.

A bench of Justice J B Pardiwala and Justice R Mahadevan passed the interim order and posted the matter for hearing on 18 March, after Additional Solicitor General N Venkataraman informed the court that some show-cause notices would expire in February.

The stay on further proceedings on the show-cause notices will remain in force until the court decides on the retrospective tax demand, the court said.

The gaming industry had sought a stay on the GST show cause notices, flagging concerns of possible coercive action by tax authorities under the show cause notices.

The Directorate General of GST Intelligence (DGGI) had raised tax demands aggregating to Rs1.12 lakh crore against 71 online gaming companies. This, along with applicable penalties, could nearly double to Rs2.3 lakh crore.

Gamescraft, a prominent gaming company had moved the Karnataks High Court against the Rs21,000 crore tax demand and got a stay on it in May 2023. The Supreme Court quashed the High Court order in September 2023.

Meanwhile, an amendment to the CGST Act in August 2023 provided for a 28 per cent tax on the "full face value" of the betting amount and the amendment was made applicable with retrospective effect from 2017. And on 1 October 2023, the GST council imposed a 28 per cent tax on full face value of online gaming bets.

Gaming companies moved various courts against this after the tax authorities served fresh demand notices, calling for a tax based on gross gaming revenue (GGR), which represents the amount wagered minus winning amounts. They say that taxing the entire amount is is unfair as gamers would be paying 28 per cent tax on each deposit made on a game.

He further contended that not staying them would be adverse to the Revenue's interests.

The GST Council had promised a review of the levy after six months. However, the gaming industry chose to challenge the tax demand in courts. There were more than 40 petitions filed by online real-money gaming companies.

These online gaming companies had reported 71 tax notices alleging tax evasion of Rs1.2 lakh crore as of December 2022-23. With interest and penalties, this would work out to around Rs2.3 lakh crore.

The petitioners were represented by Senior Advocates Harish Salve, AM Singhvi, Sajan Poovayya, and Gopal Sankaranarayanan along with Advocate Charanya Lakshmikumaran, partner at Lakshmikumaran and Sridharan, while Senior Advocate Abhishek Malhotra and Advocate Shyam Gopal appeared for Winzo Games.

Senior Advocate Dhruv Mehta, along with Advocates Pritha Srikumar and Abhyudaya Shishodia represented the All India Gaming Federation.