 "SC to hear online gaming firms' urgent plea for interim relief on GST")
The Supreme Court will hear on Friday urgent petitions filed by online gaming firms seeking a stay on GST demand notices and related proceedings.
The development comes amid concerns that the final hearing on the constitutional validity of the GST imposed on these firms may take considerable time, potentially leading to adverse actions such as tax recoveries, freezing of bank accounts, and issuance of summons.
“Online gaming companies are hopeful that the court will grant interim relief to help ensure that their operations remain uninterrupted... while awaiting a final resolution,” Abhishek Rastogi, founder of Rastogi Chambers, said.
Many of the businesses are on the verge of bankruptcy or end of closure, he said while adding that more than two dozen petitions have been filed before the apex court challenging the GST Council’s decision of imposing 28 per cent tax on gaming companies from October 1, 2023.
In December 2023, the Rajya Sabha was informed that online gaming companies received 71 show-cause notices related to GST evasion, amounting to Rs 1.12 trillion for financial year 2022-23 and the first seven months of 2023-24.
In July 2023, during the 50th GST Council meeting, online games—covering both skill-based and chance-based categories—were categorized under a 28 per cent GST slab. This new tax rate took effect on October 1, 2023. Previously, skill-based games were subject to a lower tax rate of 18 per cent.
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The ongoing controversy surrounding GST on gaming companies primarily revolves around the classification of these services, which directly impacts the applicable tax rate. The dispute centres on whether the correct GST rate should be 18 per cent, which applies to services generally, or 28 per cent, the rate levied on betting, gambling, and similar activities. This issue has significant financial implications for the gaming industry, as a higher tax rate could substantially increase their tax liability.
In addition to the debate on classification and tax rate, there is also a critical issue concerning the valuation of these services for GST purposes. The key question is whether the applicable GST rate should be levied only on the revenue earned by gaming companies—typically their platform fees or commissions—or on the total amount contributed by players as pool money. Taxing the entire pool amount at a higher rate would result in a significantly larger tax burden, potentially impacting the viability of these businesses. This dual-layered dispute, involving both the classification and valuation of gaming services, has created uncertainty in the industry.
"Gaming companies argue that applying GST on the total pool amount, rather than their actual earnings, would lead to disproportionate taxation, thereby stifling growth and innovation in the sector. Consequently, they have sought judicial intervention to resolve these issues and provide much-needed clarity on the tax treatment of their operations," stated Rastogi.