Online gaming companies case: SC agrees to hear challenges to retrospective imposition of 28% GST

The GST Council, in August 2023, amended the law to clarify that all online games involving bets, irrespective of skill or chance, will attract a GST rate of 28 percent on the full value of the bets placed, and not on the gross gaming revenue.

The Supreme Court has issued notice in pleas by online gaming companies Head Digital Works and Games 24/7 challenging thee government's decision to retrospectively impose 28 percent Goods and Services Tax (GST) on the full value of the bets placed, and not on the gross gaming revenue.

The court on January 8 directed the Centre and GST department to file their response to the plea in two weeks. The case is likely to be heard in a couple of months.

The GST department has also undertaken to file a transfer petition seeking transfer of all cases pertaining to the same issue of law from various high courts to the Supreme Court. Senior advocate Harish Salve appeared for the online gaming companies while Additional Solicitor General Venkatraman appeared for the GST department and Union of India.

Online gaming companies case: 

SC on December 15 refused to grant an interim relief against Goods and Services Tax (GST) demand notices to online gaming companies Head Digital Works and Games 24/7.

The court, however, indicated that it will consider a case on constitutional validity of the government's decision to impose 28 percent GST on online gaming companies retrospectively on the full value of the bets placed, and not on the gross gaming revenue, from October 1.

GST vs online gaming

Online gaming firms are in a tussle over the payment of 28 percent GST instead of 18 percent levied for the period up to October 1, 2023. While the companies feel the 28 percent tax is applicable only from October 1, the government is of the opinion that the October 1 revision only provided clarity to a law that was already in force. As such, the government's stance is that the demand for tax dues is not retrospective in nature.

The GST Council, in August 2023, amended the law to clarify that all online games involving bets, irrespective of skill or chance, will attract a GST rate of 28 percent on the full value of the bets placed, and not on the gross gaming revenue.

Following the Council's decision, online gaming companies have been served with huge tax demands that experts say will likely kill the entire industry. Online gaming companies have been served show-cause notices for alleged tax evasions to the tune of Rs 1 lakh crore in 2023.

In September 2023, the apex court stayed Karnataka High Court's judgment, which quashed a goods and services tax (GST) notice against Bengaluru-based online gaming company Gameskraft Technology for alleged evasion of Rs 21,000 crore.

Gameskraft Technology Private Limited (GTPL) was also accused of promoting online betting through cards, casual and fantasy games such as Rummy Culture, Gamezy, and Rummy Time. Gameskraft allegedly was not issuing invoices to customers, the officials has said.

GST officials slapped a 28 percent tax on betting amount of nearly Rs 77,000 crore. "GTPL was engaged in the betting by allowing its players/gamers to place bets in the form of money stakes on outcome of card games played online," the authorities said