SC Stay On Gameskraft Triggers Tax Woes For 40 Gaming Companies

The taxation nightmare has seemingly no end in sight for online gaming companies as the 40-odd companies on the GST authorities’ radar are now likely to receive show-cause notices. This comes after the Supreme Court (SC) stayed a Karnataka High Court ruling that had annulled a GST notice against Gameskraft over alleged tax evasion amounting to INR 21,000 Cr.

Gameskraft is among the 40 companies being investigated by the Directorate-General of Goods and Services Tax Intelligence (DGGI) for potential tax evasion. These gaming companies together could face a tax demand of up to INR 10,000 Cr.

“We should see a horde of show-cause notices. The GST authorities were trying to send the notices to other online gaming companies, but the Karnataka High Court order came in. But now the notices will be issued on the same principle,” a senior government official told Moneycontrol.

The official elaborated that these gaming companies, which allegedly facilitate online betting through real-money gaming, were refraining from paying a 28% tax between 2017 and June 30, 2022. Their operations are said to closely resemble those of Gameskraft, which influenced the GST authorities’ decision to postpone sending show-cause notices. 

Additional Solicitor General (ASG) N Venkatraman, the Central Board of Indirect Taxes & Customs (CBIC) has prepared at least 35 show-cause notices for other online gaming companies following the Karnataka HC’s judgment. 

So far, CBIC has issued three show-cause notices – the INR 21,000 Cr tax evasion notice to Gameskraft and two notices totalling INR 3,000 Cr to two other online gaming companies.

During the Supreme Court proceedings, a two-judge bench led by Chief Justice of India DY Chandrachud and Justice JB Pardiwala allowed the Directorate of Revenue Intelligence of GST to submit a rejoinder.

The ASG argued that the government appealed to the Supreme Court mainly because the High Court’s ruling leaned heavily on a previous judgement by a two-judge bench of the same court.

The CBIC will initiate action against these 40 firms after the GST council decided to levy a 28% uniform tax on face value as there was legal complexity around the distinction between games of skill and games of chance.

The GST Council did not differentiate between the skill and chance-based gaming for 28% tax.

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