GST notices worth Rs 1.12 trillion on online gaming companies stayed

SC mandates consolidation of all such cases by next hearing on March 18

The Supreme Court on Friday stayed show-cause notices on goods and services tax (GST) against online gaming companies, stating that further proceedings under these be suspended until there was a definitive resolution.

 

The tax amount in question is Rs 1.12 trillion.

 

The court also ordered consolidating the cases, with the next hearing set for March 18.

 

At the core of this dispute is whether GST applies to online gaming. The government insists that a 28 per cent GST should apply to the contest entry amount, which effectively taxes the entire prize pool.

 

Gaming companies say GST should be levied on their platform fees or commissions, emphasising that many of these games rely on skill rather than chance.

 

In addition, the contention is whether the applicable rate should be 18 per cent, which is generally applied to services, or 28 per cent, which is on betting, gambling, and related activities. This distinction carries substantial financial consequences for the gaming industry. A higher tax rate could elevate their tax liabilities. 

 

Saurabh Agarwal, tax partner, EY, said the final hearing in March would be pivotal in shaping the regulatory landscape and ensuring a fair and transparent taxation regime for this sector. 

 

The online gaming industry cheered the respite.

 

Abhishek A Rastogi, founder of Rastogi Chambers and the person representing the gaming companies in court, said: “This stay not only alleviates immediate pressure on gaming companies, preventing potential coercive actions from tax authorities, but also serves to protect the interests of the revenue authorities. By halting the proceedings, the Supreme Court ensures that these demands will not become time-barred during litigation, allowing for legal clarity without procedural obstacles.”

 

According to Anuraag Saxena, chief executive officer of the e-gaming federation (EFG), this is a win-win both for gaming operators and the government. 

 

“We are confident about a fair and progressive resolution to this issue, after which we will see investment, employment, and valuations in the gaming sector grow to its full potential. With the recent dip in FII (foreign institutional investment) in the equity market, we need more emerging sectors to bloom. Amicable and equitable resolutions like this form the basis for that confidence,” Saxena added. 

 

In July 2023, the 50th GST Council meeting classified online games, encompassing both skill-based and chance-based categories, under a 28 per cent GST slab, effective from October 1, 2023. Previously, skill-based games attracted a lower tax rate of 18 per cent. In December 2023, the government told the Rajya Sabha that online gaming companies had received 71 show-cause notices for alleged GST evasion, amounting to Rs 1.12 trillion, for 2022-23 and the first seven months of 2023-24.

 

(With inputs from Ajinkya Kawale)