GST Intelligence Tells Supreme Court: Online Gaming Taxable At 28 Percent

GST Intelligence tells Supreme Court: Online gaming taxable at 28 percent

Stresses that it was charging for ‘speculative outcomes’

The Directorate General of the Goods and Services Tax (GST) Intelligence has reiterated before the Supreme Court that online gaming companies bet and gamble. Therefore, the amounts staked in the games by the participants, were taxable.

Appearing for the GST department, additional solicitor general N Venkataraman informed the bench comprising Justice JB Pardiwala that the department was not taxing the online/offline gaming but its ‘speculative outcomes’.

ASG Venkataraman stated, "Speculative outcomes are considered relevant for taxing. Whether rummy is a game of skill or chance has no relevance. These games are nothing but gambling. Online activity is indeed betting and gambling."

He added that the online gaming industry had been paying GST for its activity as a ‘service’, taxable at 18 percent but they were characterized as betting and gambling, hence taxable at 28 percent under the Central Goods and Services Tax (CGST) Act.

Citing the judgment of a Constitution bench in the Satyanarayana case, he pointed out that the top court ruled that playing a game for stakes based on an outcome (unknown at the time of staking) was betting and gambling. It was declared under Section 30 of the Contract Act without distinction of the game played as a skill or chance.

He questioned, "Is it open for the gaming companies to contend that playing for stakes on a game of skill would not amount to betting and gambling?”

The apex court has been hearing a batch of petitions on Rs.1.12 lakh crore show-cause notices issued by the DGGI to online gaming companies and casinos over alleged tax evasion.

Early this year, the court had stayed the notices and posted the matter for final hearing in May.

Meanwhile, the government held, "The cumulative tax in all the show-cause notices is Rs.91,684.81 crore vis-à-vis online gaming companies and Rs.1,08,505 crore, including casinos."

The judgment will have far-reaching implications for the taxation framework of the online gaming industry, as clarity on tax treatment was crucial for fostering a predictable business environment. It would ensure regulatory compliance.

The DGGI had raised a tax demand of Rs.1.12 lakh crore against 71 online gaming companies.

The show-cause notices were issued after the government clarified that from 1 October 2023, all online games involving betting and gambling (skill or chance) were liable to 28 percent GST.

The administration held that some online gaming companies leveraged the lack of clarity on the taxation of games of chance and skill. The latter was earlier liable to a lower rate. Therefore, a uniform 28 percent GST on the full value of bets was required.

In August 2023, the Centre amended the GST law, making it mandatory for overseas online gaming companies to register in India from 1 October 2023. The companies sought clarity as the government imposed 28 percent GST on the ‘full value of the bets placed, and not on the gross gaming revenue’.

The gaming firms, including Delta Corp Ltd, Head Digital Works, Play Games 24x7 and the E-Gaming Federation of India had, challenged the government's decision stating it would force them out of business.

The notices raised GST demands on each game's 'buy-in' amount and the proceeds. It reasoned that the money in online skill or chance games meant betting and gambling. According to the petitioners, the 'buy-in' constituted a transfer of goods as actionable claims. The companies held that the online operator made no actionable claims to players, and hence, the GST levy was ‘unsustainable’.

In April 2024, the top court transferred 51 petitions to itself challenging the government's decision to impose a 28 percent GST on all online gaming companies. Filed by online gaming companies and casinos, these were pending in nine high courts across the country.

The Supreme Court earmarked the petitions with the pending Games Kraft case and appeals filed by others. Bengaluru-based online gaming platform Gameskraft was accused of promoting online betting through Rummy Culture, Gamezy and Rummy Time games.

In September 2023, the apex court stayed the Karnataka High Court judgment overturning the DGGI order imposing a Rs.21,000 crore GST demand on Gameskraft.