Supreme Court Halts GST Proceedings Against 49 Online Gaming Companies Temporarily

New Delhi, 10th January 2025: On Friday, the Supreme Court put a temporary halt to Goods and Services Tax (GST) proceedings against 49 online gaming companies, which were served retrospective tax demand notices based on the full face value of bets placed through their platforms. This development arose in the case Gameskraft v. GST.

A bench comprising Justices JB Pardiwala and R Mahadevan granted the stay following a request from the GST department and scheduled the case for a hearing on March 18. Additional Solicitor General (ASG) N Venkataraman, representing the GST department, argued that some show-cause notices would conclude in February and that not staying them could harm the Revenue’s interests.

The controversy began when the GST Council, on October 1, 2023, imposed a 28% tax on the full face value of online gaming bets, with a review promised after six months. The gaming industry has opposed this, advocating for the tax to be calculated on gross gaming revenue (GGR), which represents the total amount wagered minus payouts. Industry stakeholders argue that taxing the full face value, which includes contest entry fees, is inequitable and could make online gaming platforms less accessible due to higher costs for players.

By December 2023, online gaming companies had received 71 show-cause notices alleging GST evasion amounting to ₹1.12 lakh crore for the financial year 2022-23 and the first seven months of 2023-24. With penalties and interest under Section 74 of the GST Act, the total liability could surpass ₹2.3 lakh crore.

More than 40 petitions from online gaming companies are pending before the Supreme Court, challenging the retrospective GST notices. These companies are contesting demands for tax payments calculated at 28% of the total face value of bets. Many platforms have absorbed the GST burden temporarily, but this approach is not seen as viable in the long term.

The issue escalated when the GST Council applied the 28% tax retrospectively, covering bets placed between August 2017 and October 1, 2023. The Council categorized these bets as gambling activities, whether they involved games of skill or chance.

One of the most significant cases involves Gameskraft Technology, which, in September 2022, was served a show-cause notice by a GST intelligence unit alleging unpaid GST of ₹21,000 crore—the highest claim in India’s indirect tax history. The company was accused of promoting online betting through games such as Rummy Culture, Gamezy, and Rummy Time. Authorities claimed Gameskraft facilitated betting by allowing players to wager money on online card games without issuing invoices. A 28% GST was applied to approximately ₹77,000 crore in betting volumes.

Gameskraft challenged this notice in the Karnataka High Court, which ruled in its favour, declaring Rummy a game of skill and not subject to actionable claims taxation. This decision invalidated the GST notice, delivering a significant setback to the tax department.

The GST department appealed the Karnataka High Court’s ruling directly to the Supreme Court, bypassing the division bench. ASG Venkataraman argued that the High Court’s decision complicated action on at least 35 similar notices. In September 2023, the Supreme Court upheld the High Court’s judgment to prevent its precedent from influencing other courts.

Prominent legal counsel represented the petitioners, including Senior Advocates Harish Salve, Dr. AM Singhvi, Sajan Poovayya, and Gopal Sankaranarayanan, alongside Advocate Charanya Lakshmikumaran. Winzo Games was represented by Senior Advocate Abhishek Malhotra, while the All India Gaming Federation was represented by Senior Advocate Dhruv Mehta and others from Keystone Partners.