The Supreme Court of India has issued a notice to the Union government, demanding a response to a plea filed by online gaming companies challenging tax demands amounting to ₹1.5 lakh crore. The three-judge bench, led by Chief Justice D.Y. Chandrachud, has granted the government and the tax department a two-week window to present their responses.
The E-Gaming Federation, Play Games24x7, Head Digital Works, and other gaming startups collectively filed the petition against retrospective goods and services tax (GST) claims. The Directorate General of GST Intelligence had initiated the process of issuing notices to online gaming companies for retrospective GST claims over the previous five fiscal years, reaching a staggering ₹1.5 trillion.
The controversy stems from the amendment made by the GST Council in August, specifying that online games involving bets would attract a 28% tax rate on the full value of bets placed, effective from October. Gaming companies argue that the 28% tax should only be applicable from October 1, while the government contends that the amendment merely clarified an existing law, making its demand for tax dues non-retrospective.
Finance minister Nirmala Sitharaman, addressing the Lok Sabha during a discussion on the GST (Second Amendment) Bill, asserted that the 28% GST on entry-level bets for online gaming platforms is prospective. She clarified that the tax rate and its application were well-defined, and the valuation rules to exclude winnings are to be applied prospectively.
Simultaneously, the GST Department has informed the Supreme Court of its intention to file a petition seeking the transfer of all cases related to this issue from various high courts to the apex court. This move aims to consolidate and streamline the legal proceedings concerning the contentious GST demands on online gaming companies.
It is essential to note that in September, the Supreme Court had stayed a Karnataka High Court ruling that quashed a GST notice on Gameskraft Technology, a Bengaluru-based gaming company, for alleged tax evasion amounting to ₹21,000 crore. This decision hinted at the escalating legal battle between the gaming industry and tax authorities, setting the stage for a comprehensive judicial examination of the matter.
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