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SC Stays GST Proceedings Against Online Gaming Companies on Centre’s Request
SN Thyagarajan (Bar  and  Bench) 10 January 2025
Economy & Nation
The Supreme Court on Friday stayed Goods and Services Tax (GST) proceedings against 49 online gaming companies over retrospective demand notices issued to them on full face value of bets placed through their portals. (Gameskraft v. GST)
 
A Bench of Justices JB Pardiwala and R Mahadevan granted the stay on the GST department’s request and listed the case for hearing on March 18.
 
Additional Solicitor General N Venkataraman, who appeared for the GST department, told the Court that some show cause notices will run their course in February. He further contended that not staying them would be adverse to the Revenue's interests.
 
On October 1, 2023, the GST Council imposed a 28% tax on the full face value of online gaming bets. It promised to review the levy after six months. The gaming industry, however, has been advocating for the tax to be calculated on gross gaming revenue (GGR) rather than the face value of bets. GGR represents the amount wagered minus winnings. In contrast, the full face value refers to the total bet amount or contest entry fee. Gaming companies argue that taxing the full face value is unfair because users are required to pay 28% GST on each deposit made. This could make online gaming platforms more expensive and less accessible to the general public.
 
As of December 2023, online gaming companies have received 71 show-cause notices alleging GST evasion of  1.12 lakh crore during 2022-23 and the first seven months of 2023-24, excluding interest and penalties. Since these notices were issued under Section 74 of the GST Act, which allows the department to impose a penalty of up to 100% of the tax demand, the total liability could exceed 2.3 lakh crore, including interest.
 
Over 40 petitions filed by online real-money gaming companies challenging the retrospective GST notices are currently pending before the Supreme Court. These notices demand payments running into thousands of crores, calculated at 28% on the full face value of bets.
 
Currently, some platforms are absorbing the GST cost either partially or entirely, but this approach may not be sustainable in the long term. The industry's challenges were exacerbated when the GST Council applied the tax retrospectively, requiring a 28% levy on the full face value of all bets placed between August 2017 and October 1, 2023. According to the Council, these bets fall under the gambling category, regardless of whether they involved games of skill or chance.
 
In a notable case, a GST intelligence unit issued a show-cause notice to Gameskraft Technology in September 2022. The notice alleged that the company failed to pay 21,000 crore in GST - the largest claim in India’s indirect taxation history - for the period between 2017 and June 30, 2022.
 
Gameskraft was accused of promoting online betting through games like Rummy Culture, Gamezy and Rummy Time. The authorities claimed the company facilitated betting by allowing players to stake money on card games online and failed to issue invoices to customers. GST officials imposed a 28% tax on a betting volume of approximately 77,000 crore.
 
This case also raised broader legal questions, including whether Rummy is a game of skill or chance and whether Gameskraft’s activities constitute actionable claims subject to taxation. Gameskraft contested the notice before the Karnataka High Court, which ultimately ruled in the company’s favor. The High Court held that Rummy is a game of skill and that Gameskraft was not involved in supplying actionable claims, thereby invalidating the GST notice.
 
This ruling dealt a significant blow to the GST department, which appealed the decision directly to the Supreme Court, bypassing the division bench of the Karnataka High Court.
 
At the Supreme Court, ASG Venkatraman, representing the GST department, argued that the High Court's judgment had created challenges by halting action on at least 35 similar show-cause notices. On the very first day of the hearing in September 2023, the Supreme Court stayed the Karnataka High Court’s ruling, stating that it did not want other courts to follow this precedent.
 
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