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SUPREME COURT ON GST LEVY ON ONLINE GAMING COMPANIES

Dr. Sanjiv Agarwal
Supreme Court Grants Interim Relief to Online Gaming Companies Against 28% GST Demands; Proceedings Stayed Until March 2025. The Supreme Court granted interim relief to online gaming companies against show cause notices demanding a 28% GST with retrospective effect, as decided by the GST Council. The Directorate General of Goods and Services Tax Intelligence issued tax demands totaling Rs. 1.10 lakh crore against 71 companies, arguing that GST should apply to the full value of bets, while gaming companies contend it should only apply to platform fees. The Supreme Court stayed proceedings until March 18, 2025, preventing coercive tax action and consolidating all cases, impacting the taxation and business models of online gaming companies. (AI Summary)

Supreme Court has provided an interim relief to online gaming companies against show cause notices issued to them demanding GST @ 28% with retrospective effect after GST Council decided to levy GST with retrospective effect. In all, 49 show cause notices aggregating to around Rs. 1.10 lakh crore had since been issued by DGGI and challenged before Supreme Court. [DIRECTORATE GENERAL OF GOODS AND SERVICES TAX INTELLIGENCE (HQS) & ORS. VERSUS GAMESKRAFT TECHNOLOGIES PRIVATE LIMITED & ORS. - 2023 (9) TMI 402 - SC ORDER].

DGGI had issued a tax demand of Rs. 1.10 lakh crore against 71 online gaming companies as government decided that all online games involving betting and gaming, irrespective of game of skill or game of chance, would attract GST @ 28%. On the full face value of the bets w.e.f. 01.10.2023.

The show-cause notices and the cases revolve around the interpretation of applicability of GST on online gaming. The government is of the view that 28% GST should apply to the total contest entry amount, effectively taxing the entire prize pool. To this effect, the GST council had amended the law, effective October 1, 2023. However, gaming companies argue that GST should only be levied on their platform fees or commission, as many of these games involve skill rather than chance. They contend that the amendment by the GST Council is retrospective in nature and the law should be applicable only after October 1, 2023.

The issues before apex court :

  1. Can GST @ 28% be levied on deposits made by games, i.e. full value of bets placed instead of gross gaming revenue?
  2. Can GST be levied retrospectively?

Apex Court 10 January 2025 verdict

  • All show cause notices shall not become time barred.
  • Proceedings of all show cause notices shall remain suspended till there is a definitive resolution.
  • All cases to be consolidated before next date
  • Prevents coercive tax action
  • Next date of hearing is 18 March, 2025

Supreme Court on 10.01.2025 heard the matter and has stayed the proceedings till next date, i.e., 18 March, 2025. The court directed that the adjudication of all the show cause notices will be stayed till 18.03.2025 and directed that such notices will not become time barred during litigation. By next date, all such cases shall also stand consolidated.

This is only a temporary or interim relief and the final outcome will have a wider and deeper impact on taxation / bottom line / businesses model of online gaming companies, besides providing much needed clarity to both sides.

Goods and Services Tax - GST
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