28% GST On Online Gaming: SC Schedules Final Hearing On July 25

The Supreme Court has reportedly scheduled July 25 as the date of final hearing in the case related to show cause notices issued to online gaming companies over alleged evasion of GST totalling INR 1.12 Lakh Cr. 

As per Business Standard, online gaming platforms yesterday told the SC that the 28% GST of real money games was fundamentally flawed and contrary to the legal framework.

Senior counsel V Sridharan, appearing for online gaming platforms, reportedly contended that the GST provisions before October 2023 were inadequate to impose 28% tax on online gaming players. 

For context, the 28% levy on the full value of the bets placed in online gaming came into effect in October 2023.

Making his case, Sridharan argued that Rule 31A of the GST Rules, introduced in 2018, did not comply with the mandatory two-step process under Section 15(5) of the CGST Act. For context, Rule 31A prescribes the valuation method for betting and gambling.

The senior counsel reportedly argued that the rule was rendered ineffective and invalid as it was issued without first notifying “actionable” claims as taxable supplies. He added that attempts to tax actionable claims like betting and gambling as “goods” by amending the Goods Rate Notification were also flawed. 

Until October 1, 2023, there was no entry for actionable claims in the Customs Tariff Schedule which made their classification as goods unsustainable under GST, argued Sridharan.

Contending that various GST notifications and the Integrated GST Act “consistently treated online gaming as “services”, the counsel said the abrupt reclassification of online gaming as goods lacked legislative coherence.

The gaming companies also argued that prize pool contributions by players did not constitute a consideration and thus could not be taxed under GST. They also contended that online gaming operators merely provided platform services even as these games were played between individual users.

“However, the operator does not make any other supplies and only holds the Prize Pool as a deposit to be settled in favour of the winner, which is decided between the players. Thus, the operator cannot be made liable for supplies made inter se (between the players),” Sridharan reportedly told the SC.

After hearing the counsel, the division bench, comprising Justices JB Pardiwala and R Mahadevan, asked Sridharan if the entire game would be treated as a transaction. To this, the senior advocate said, “GST is a contract-based tax.”

Meanwhile, the SC will continue hearing the case today.

At the heart of the matter is the SC hearing a clutch of petitions against the 71 show cause notices issued to online gaming companies for alleged evasion of GST between 2022-23 and the first seven months of 2023-24.

The petitioners are challenging retrospective GST notices and the absence of clear taxing provisions to enforce tax collection for gaming companies before October 2023. The gaming platforms claim that attempts to retroactively impose GST without statutory backing violated fundamental tax principles and called for the revocation of notices.