The Supreme Court of India has agreed to hear a petition filed by the E-Gaming Federation (EGF) and two of its members, Head Digital Works and Play Games 24*7, challenging the constitutional validity of the GST notices issued by the Directorate General of GST Intelligence (DGGI) to various online gaming companies. The notices have raised a demand of GST on the ‘buy in’ amount for each game, treating it as a supply of an actionable claim and a form of betting and gambling. The petitioners have sought a stay on the notices and a declaration that the levy of GST on online games of skill is unsustainable.
Background
The DGGI had issued show cause notices to several online gaming companies, including Gameskraft Technology, for alleged evasion of GST to the tune of Rs 21,000 crore. The notices were based on the interpretation that online games, whether of skill or chance, are liable to pay 28% GST on the full face value of the bets placed on the platforms. The DGGI also claimed that overseas online gaming companies are required to register in India and pay GST from October 1, 2023.
The Karnataka High Court had quashed the notice against Gameskraft Technology, holding that online games of skill are not betting and gambling and that there is no supply of an actionable claim by the online operator to the players. However, the Supreme Court had stayed the High Court’s judgment on September 6, 2023, after an appeal by the DGGI.
Arguments
The EGF and its members have contended that the show cause notices are directly contrary to established jurisprudence that games of skill, whether played for stakes or not, are not betting and gambling. They have also argued that the measure adopted under Rule 31A of the CGST Rules has no nexus with the character of GST and that Parliament has no legislative competence under Article 246A of the Constitution to levy GST on online games of skill.
The petitioners have further submitted that there is no transfer of property in goods or services by the online operator to the players and that the ‘buy in’ amount is merely a deposit or an entry fee for participating in a game. They have also claimed that there is no uniformity in the GST rates across states and that some states have exempted online games of skill from GST.
The DGGI, on the other hand, has maintained that online gaming, betting, and gambling are subject to 28% GST on the full face value from October 1, 2023, as per the government’s clarification. The DGGI has also asserted that some online gaming companies have leveraged the lack of clarity on taxation of “game of chance” and “game of skill” before October 1 and that there is a need to have a uniform GST regime for online gaming platforms.
Status
The Supreme Court has refused to grant any interim relief to the petitioners and has posted the matter for hearing on January 8, 2024. The court has also indicated that it may club similar tax matters pending at various High Courts and decide them together.