Supreme Court stays GST notices worth over Rs 1 lakh crore against online gaming firms for tax fraud

New Delhi: The Supreme Court, on Friday, stayed the show-cause notices to the tune of Rs 1.12 lakh crore issued by the Directorate General of GST Intelligence to online gaming companies and casinos over alleged tax evasion.

A bench of Justices J B Pardiwala and R Mahadevan stayed proceedings related to the notices till the final disposal of the matter on March 18, while noting that the matter was ready for hearing.

Additional Solicitor General N Venkataraman submitted that some notices will become time-barred as some of the proceedings arose from assessment year 2017-18 onwards. He said that these will run their course in February and not staying them would be adverse to the tax department’s interests.

“In such circumstances, the adjudication of all the show-cause notices will be stayed," the bench said.

“The cumulative tax effect in all these show-cause notices is approximately to the tune of Rs 91,684.81 crore alone vis-à-vis online gaming companies and Rs 1,08,505 crore including casinos,” the government stated.

The DGGI had raised a tax demand of Rs 1.12 lakh crore against 71 online gaming companies. 

The notices were issued after the GST Council clarified that all online games involving betting and gambling, irrespective of skill or chance, would attract 28 per cent GST on the full-face value of the bets from October 1, 2023. 

The government claimed that some of these online gaming companies leveraged the lack of clarity on taxation of games of chance and those of skill—the latter then being liable to a lower rate--before October 1 and a uniform 28 per cent GST on the full value of bets placed on the platforms was needed.

While the government also amended the GST law in August 2023, making it mandatory for overseas online gaming companies to register in India from October 1, 2023, the online gaming companies, on their part, have sought clarity as the government is retrospectively imposing 28 per cent GST on the “full value of the bets placed, and not on the gross gaming revenue.”

The gaming firms Delta Corp Ltd., Head Digital Works and Play Games 24x7, besides the E-Gaming Federation of India, and others questioned the validity of the decision to retrospectively impose 28 per cent GST on the full value of the bets placed, and not on the gross gaming revenue.

The companies claimed this will force them out of business.

The notices raised GST demands on the ‘buy-in’ amount for each game and the proceeds, reasoning that the staking of money in online games --whether of skill or chance--amounted to betting and gambling, according to the gaming companies. 

The court had in September 2023 stayed the Karnataka High Court judgment overturning the DGGI order imposing a Rs 21,000 crore GST demand on a Bengaluru-based online gaming platform.