SC Sets January 8 Hearing For E-Gaming Companies' GST Challenge

The Supreme Court has declined to stay tax notices issued by the Directorate General of GST Intelligence (DGGI) to prominent e-gaming companies. The notices, demanding Goods and Services Tax (GST) on the 'buy in' amounts for each game, allege that the act of staking money in online games, regardless of skill or chance, constitutes betting and gambling. 

The e-gaming companies, including members of the E-Gaming Federation such as Head Digital Works and Play Games 24x7, face substantial GST demands, amounting to Rs 6,497 crore and Rs 20,929 crore, respectively.

Challenges to the notices have been mounted, with the petitioners asserting that there is no supply of actionable claims by online operators to players, making the GST levy untenable. The Supreme Court has scheduled a hearing on 8 January to delve into the intricacies of the matter.

During the proceedings, the additional solicitor general underscored the gravity and sensitivity of the taxation issue related to online gaming. Remarkably, the petitions by the e-gaming companies have not been formally served on the government, intensifying the complexity of the situation.

Legal representatives for the E-Gaming Federation and its members sought limited protection, urging the tax department to refrain from enforcement for an additional three weeks until the Supreme Court hears the case. The companies argue that the show cause notices and the subsequent GST demands are disproportionately burdensome, with potential far-reaching consequences for the burgeoning online gaming industry.

The government's stance, clarified in the wake of a lack of clarity on the taxation of "game of chance" and "game of skill" before 1 October, imposes a 28 per cent GST on the full face value of bets placed on online gaming platforms. Furthermore, the government amended the GST law, mandating overseas online gaming companies to register in India from October 1, marking a significant regulatory shift.

In a related case, the Supreme Court had earlier stayed a Karnataka High Court order that quashed a hefty Rs 21,000 crore GST notice issued to online gaming platform Gameskraft on 5 September. The current legal battle extends beyond challenging the show cause notices, encompassing a broader challenge to the constitutional validity of specific sections of the Central Goods and Services Tax Act and related rules. 

The petitioners argue that these provisions are arbitrary, unreasonable, and violate constitutional articles pertaining to equality and the right to carry on trade and business.