The Supreme Court on November 7 granted an interim stay on Rs 123-crore GST notice, which was issued to Baazi Games by the Directorate General of GST Intelligence (DGGI) in August.
In its order, released on Monday, the apex court took note of the pending judgement in the Gameskraft case, which is of similar nature, and stayed any further proceedings on Baazi Games by DGGI. In August, the DGGI had issued the Rs 123-crore GST notice to Baazi Games.
The SC has reserved its judgement on the retrospective GST levy case—amounting to about Rs 2.5 lakh crore—on online gaming companies. The hearings on a batch of cases, which included Gameskraft, Delta Corp, and members of industry bodies like the All India Gaming Federation (AIGF), E-Gaming Federation (EGF) and the Federation of Indian Fantasy Sports (FIFS), were concluded in August.
Baazi Games argued in the top court that despite the larger issue being sub-judice before the SC in the online gaming batch (where judgment has already been reserved) the DGGI issued a notice, and sought personal hearing on the case, a source privy to matter told Moneycontrol. The petitioner thus challenged the order being violative of Section 15(1) and 15(5) of the CGST Act, and Article 246A of the Constitution, the person added.
Section 15 deals with the value of taxable supply of any goods and services. And Article 246A of the Indian Constitution is a special provision that grants the power to the Parliament and State Legislatures to make laws regarding GST.
Tax experts said that Supreme Court’s stay on the ₹123 crore GST notice issued to Baazi Games adds to the growing judicial push-back against tax demands in the online gaming sector.
"This order reinforces consistency in the Court’s approach and brings a measure of clarity to an industry grappling with multiple investigations and uncertainty over how online skill-based games are to be taxed," said Sandeep Sehgal,Partner-Tax, AKM Global.
The online gaming companies’ case
The core issue argued by the petitioners, in August, was whether online games, such as rummy and fantasy sports, are "games of skill" or "games of chance". And whether the GST should be levied on "full face value of bets" or the "actual transaction value".
Full face value of bets refers to the entire amount of money (or its equivalent, like chips or tokens) that a player wagers in a game, regardless of whether it's a game of skill or chance. Whereas, actual transaction value means revenue earned by the online gaming platform for providing its services. It's essentially the commission, or service fee, the platform takes from the total money involved in a game.
In October 2023, the central government had issued a notification "clarifying" that a 28% GST is applicable on online gaming, on the full-face value of bets. This has been a contentious point for the industry, as it significantly increases the tax burden compared to previous models. For instance, if you deposit Rs. 1,000, and GST is applied at 28% on the full-face value of the deposit (which is then used for betting), Rs. 280 goes to GST, leaving only Rs. 720 for gameplay.
Online gaming companies say that GST should only be levied on this "actual transaction value" (their commission/revenue), as that's the true "supply of service" they provide.
The central government in 2024 had admitted in Parliament that 71 show-cause notices had been issued to online gaming companies, flagging GST evasion of Rs 1.12 lakh crore. The industry, however, says the tax notices are worth over Rs 2 lakh crore
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