Supreme Court stays demand for Rs 150-crore goods and services tax (GST) tax notices from online gaming companies till final ruling

The Supreme Court on Friday stayed all tax notices issued by the tax department to online gaming companies, estimated to exceed $On the request of both parties, Rs 150 crore was allocated and a hearing on the matter is scheduled to be held on March 18.

Bookmakers and the revenue department have sought a stay, with the revenue department trying to prevent several notifications from expiring in the first week of February.

The bench, comprising Justices JB Pardiwala and R. Mahadevan, granted the stay in the interest of all parties after the tax department expressed concerns that delay in taking action on the notification might render it time-barred, thereby preventing the government from collecting the required tax. .

As per the law, failure to act on a show-cause notice within the specified time will render it invalid. For example, notifications issued by the Directorate General of GST Intelligence to online gaming companies related to FY 2018 will expire on February 4, 2025, thereby becoming ineffective. The Supreme Court’s stay now extends the proceedings until the court rules on the matter.

“The Supreme Court’s stay provides much-needed relief to gaming companies, protecting them from enforcement action and addressing concerns about the impact of aggressive tax demands on their operations,” said Abhishek, the lawyer representing the gaming companies in the case. Abhishek A Rastogi said. “At the same time, it also protects the interests of income [department] Ensure that these claims do not become time-barred during litigation, thus preserving a scope for legal clarity. ”

Gaming companies including Games 24×7, Head Digital Works, Play Games 24×7 Pvt Ltd, Baazi Networks Pvt Ltd and E-Gaming Federation filed 51 writ petitions in the Supreme Court challenging the imposition of GST on them.

Additional Solicitor General for Revenue N. Venkataraman told the court that the amount demanded from the bookmakers was more than $1.5 billion rupees.

The Supreme Court had earlier refused to stay the notification and decided to transfer all relevant cases to itself from various high courts. In one case, the court set aside a Karnataka High Court judgment that set aside the equivalent of $Gameskraft received Rs 21,000 crore.

In August, the Goods and Services Tax Council amended the law to impose a 28% tax on the “full value” of bets or entries in online games, which will come into effect in October 2023. The online gaming company argued that the 28% tax should only apply from October 1, 2023. However, the government argued that the amendments clarified existing law so that the tax requirements were not retroactive.

Actionable claims

Bookmakers also argue that recurring amounts such as entry fees should not be considered taxable actionable claims. Senior advocate Harish Salve, representing the gaming industry, argued that since the games are played between players and companies only charge platform fees, winnings and prize pools held by companies should not be subject to GST.

Gaming companies have highlighted that tax claims against online gaming companies far exceed their reported net income over the past five years, threatening to push the industry into bankruptcy.

An actionable claim is a claim brought in court against a sum of money owed by one party to another. In online gaming, the prize pool is held in an escrow account by the gaming operator and the winner’s claim for winnings becomes an actionable claim under the law. While actionable claims did not previously apply to online gaming, they have been included in the revised Goods and Services Tax Act, which comes into effect from October 1, 2023.

Experts say that without a stay order, tax authorities are likely to continue making demands, which could destabilize the growing online gaming industry.