Supreme Court send notice to Centre on 28% GST for Online Gaming Companies

The Supreme Court issued a notice to the government on Monday to respond to a plea filed by online gaming companies on tax demands amounting to Rs.1.5 lakh crore. The court, however, did not issue a stay on the government’s tax notices.

A Supreme Court bench of three judges, led by Chief Justice D.Y. Chandrachud, has given the Union government and the revenue department two weeks to respond.

The E-Gaming Federation, along with Play Games24x7, Head Digital Works, and other gaming startups, had filed a petition with the court challenging retrospective goods and services tax (GST) claims.

On September 27, Mint reported that the Directorate General of GST Intelligence was issuing notices to online gambling companies for retrospective GST claims for the past five financial years, totalling over Rs.1.5 trillion.

The problem began in August, when the GST Council changed the rules to “clarify” that online games involving bets would be taxed at a rate of 28% on the total value of the bets made. This was scheduled to take effect in October.

Gaming companies say that the 28% tax should be effective only on October 1, but the government claims that the change explained an existing statute, therefore its demand for tax dues was not retroactive.

Finance Minister Nirmala Sitharaman recently stated in the Lok Sabha during a discussion of the GST (Second Amendment) Bill that the valuation standards for applying a 28% GST on entry-level wagers on online gambling platforms were effective prospectively.

“The tax is 28%, and it is apparent who will be affected and who will bear the burden… The valuation rules for excluding winnings are prospective,” Sitharaman explained.

Meanwhile, the GST Department has told the Supreme Court that it will file a petition to transfer all cases involving the matter from the various high courts to the Supreme Court.

In September, the Supreme Court stayed a Karnataka High Court decision that had rejected a GST notice against Bengaluru-based Gameskraft Technology for alleged tax fraud totalling Rs.21,000 crore.