Last week, the main industry lobby, which is also preparing to approach the court any day now, circulated a draft interim application with members for their comments, two persons told ET. According to legal circles, SC is expected to hear the matter this week.
For the gaming industry, the urgency to rush to SC stems from the February 5, 2024 deadline that GST officials are chasing for converting their past show cause notices to the gaming companies into tax demands through issuance of adjudication orders.
What’s playing out now is a battle of nerves between the trade and the tax office. On one hand, unless the tax department sends out the adjudication orders by early February, the tax notices, as per regulations, will turn invalid. On the other hand, the gaming bodies know that ramming through a huge tax demand could sound a death knell for many firms.
The GST regulation was changed in January 2018 and subsequently the GST Act was amended in late 2023 to bring online money gaming under the ambit of the law. This paved the way for the tax office to make a retroactive imposition of 28% GST on the total betting pool (or deposits) with the firms between January 2018 and September 2023. Companies are anyway paying 28% GST on the pool since October 1, 2023 when the amended law became effective.The adjudication notices, thus, relate to finalising tax claims for the period prior to October 2023.The crucial case before the SC pertains to the following issues: first, can GST be imposed on the full deposit made by gamers; second, whether GST can be imposed for the period prior to October 2023; third, are online money games like Poker, Rummy, and Fantasy Sports, games of ‘chance’ or ‘skill’ — if the court finds them to be games of chance, then it could well be the end of the road for the industry as gambling (or pure wagers) is banned under Indian laws.
Gaming companies have challenged the constitutional validity of ‘Rule 31 A’ — the specific rule under the GST Act — to argue that while the indirect tax can only be levied on ‘supply’ of goods and services, deposits by gamers (or the full face value of the betting amount received by gaming companies) can in no way be construed as payment against any ‘supply’. Instead, the GST should be on the ‘fees’ — varying from 5-20% of the deposits — earned by gaming companies for their services.
Significantly, some of the turf clubs have paid the GST for previous years under protest after the changed law brought horse racing under its purview. However, while some of the old racing clubs had the wherewithal to meet the tax claim, most gaming companies probably lack the resources to cough up large tax demands. As a result, some are beginning to shut shop.
After some of the companies had earlier won in the High Courts, the revenue department moved the SC challenging the rulings. The final SC verdict is awaited on these multiple cases which have been clubbed. The interim or interlocutory applications are aimed to hold back the tax office till the SC gives the final ruling.
“Under the circumstances, the main prayer before the SC is to direct the GST office to refrain from any further action pending disposal of the present batch of matters as it would affect the very existence of the online money gaming companies since the demands for additional tax payable far exceed the total revenue earned by these companies,” said a person.
HIGHLIGHTS:
- GST dept makes retro demand from Jan’18-Oct‘23
- Some tax claims exceed gaming firms’ earnings
- Tax dept is chasing Feb 5 deadline to keep the claims alive
- This is driving gaming cos to SC for interim relief
