The Supreme Court on Friday stayed goods and services tax (GST) show cause notices issued by the revenue department to over 50 online gaming companies amounting to over Rs 1.12 lakh crore ($13.2 billion).
At the same time, the Court ordered that these notices would not become time-barred during the litigation. The next hearing is on March 18, and the apex court has directed the consolidation of all the cases.
Over 50 petitions have been filed by real-money gaming (RMG) companies including Gameskraft, Head Digital Works, Games24x7, Baazi Games, and WinZO and industry associations such as E-Gaming Federation (EGF) and AIGF (All India Gaming Federation) challenging the retrospective demand tax notices, calculated at 28% on the face value of bets. These include several pleas that have been transferred to the apex court from various high courts.
The apex court has directed that all further proceedings under these notices remain suspended until the matter is conclusively adjudicated. Abhishek A Rastogi, founder of Rastogi Chambers, who is representing the gaming companies before the Supreme Court, told Hindu Businessline that the stay not only provides immediate respite to gaming companies from potential coercive action, but also safeguards the interests of the Revenue authorities. By pausing the proceedings, the SC ensures that the demands do not become time-barred during the course of the litigation, preserving the scope for legal clarity without procedural hindrance.
The online gaming sector had raised alarms about the possibility of aggressive recovery actions by tax authorities based on these notices. Companies argued that such actions could severely impact their operations, especially given the contentious nature of the GST demands. The SC’s intervention addresses these apprehensions and ensures a fair hearing.
At the heart of the dispute lies the interpretation of GST applicability on online gaming, Businessline reports. The government contends that a 28% GST should apply to the total contest entry amount, effectively taxing the entire prize pool. However, gaming companies argue that GST should only be levied on their platform fees or commissions, as many of these games involve skill rather than chance.
“The outcome of this case is expected to have far-reaching implications for the taxation framework of the online gaming industry in India. With the sector poised for rapid growth, clarity on tax treatment is crucial for fostering a predictable business environment and ensuring regulatory compliance. This development underscores the evolving legal and policy landscape for online gaming in India, with the SC’s eventual ruling likely to shape the future of the industry,” said Rastogi.
RMG companies and industry associations welcomed the Supreme Court’s decision.
“This is a win-win, both for gaming operators who were facing coercive action, and the government whose timelines may now be extended. We are confident about a fair and progressive resolution to this issue, after which we will see investments, employment, and valuations in the gaming sector grow to its full potential” Moneycontrol quotes Anuraag Saxena, CEO of EGF, as having said.
EGF represents India’s top online rummy and poker operators such as Games24x7, Head Digital Works, and Junglee Games.
WinZO Games co-founder Saumya Singh Rathore told Moneycontrol that while the GST resolution may take time, the company remains optimistic that a “fair resolution will not only provide the much-needed clarity but also accelerate innovation, job creation, and investor confidence”.
“Regulatory clarity will be pivotal in fostering an environment where the industry can create over 5 decacorns and 10 unicorns within the coming 5 years, driving significant value for Indian markets and global investors,” she said.
