Potential withdrawal of GST notices hangs on Gameskraft case outcome

About 70 to 80 online gaming firms, including notable ones like Dream 11 and Play Games 24x7

Tax evasion notices issued to online gaming companies could be withdrawn if the Supreme Court (SC) ruled against the revenue department in the Gameskraft case, a senior government official told Business Standard.

“Show cause notices issued to online gaming firms were time-barred up to September 30. We have issued notices for alleged tax evasion and shortfalls so that we could initiate adjudication and recovery in a time-bound manner. In case of any unfavourable ruling from the apex court, those notices issued could be withdrawn,” he said while explaining the rationale behind a flurry of show cause notices to online gaming firms in the past month.

About 70-80 online gaming firms, including prominent ones like Dream11 and Play Games24x7, have received tax notices claiming evasion as high as about Rs 1 trillion across the gaming industry. They were imposed 28 per cent goods and services tax (GST) as authorities felt that they qualified under betting and gambling.

Most of the scrutiny notices issued to e-gaming firms were for 2017–18, the deadline for which ended on September 30, so that the authorities could adjudicate the matters by the end of December — another crucial deadline for concluding the case.

Notices were sent under Section 73 of the Central GST Act. The said provision triggers when tax is not paid or short-paid, input tax credit is wrongly availed, or utilised for any reason other than fraud or any wilful suppression of facts.

Bengaluru-based online gaming firm Gameskraft challenged one such notice in the Karnataka High Court (HC). In the notice, a GST Intelligence unit alleged that the company had failed to pay Rs 21,000 crore in GST, the biggest such claim in the history of indirect taxation. The notice was for the period between 2017 and June 30, 2022.

The HC ruled in favour of the e-gaming firm and said that games of skill could not be taxed at 28 per cent GST.

However, on September 6, the SC overturned the Karnataka HC’s ruling, quashing the GST authorities’ tax demand order. The matter was expected to be taken up in three weeks from the date of the stay order; however, the next hearing has not yet been announced. The GST department would have been subject to limitations on back-dated tax collections if this verdict had persisted after December 31, 2023, especially for transactions from 2018–19 and earlier.

Following the stay order, and even though the deadline was approaching, the GST authorities raised a tax demand over non-payment of GST 

at 28 per cent on the full face value of bets placed on their platform.

“The show cause notice that is going on is as per legal provision... The department is taking a uniform stand in the interpretation of the law, and accordingly, show cause notices are being issued,” Central Board of Indirect Taxes & Customs Chairman Sanjay Kumar Agarwal said during an event. The SC decision in Gameskraft is expected to set a precedent for all real-money gaming firm cases that are already reeling under the government’s new taxation regime, which imposes 28 per cent GST on the entry bet.

During the GST Council’s Saturday meeting, Delhi was reported to have raised the issue of tax notices to online gaming firms and said that taxing them would kill a sunrise industry.

Eighteen states had so far amended state laws through ordinances or amendments to make the 28 per cent gaming levy effective on October 1. However, 13 states have yet to make changes.