Online gaming companies have moved the Supreme Court seeking a review of its 27 May judgment that has upheld the constitutional validity of the 28% Goods and Services Tax (GST) levy on online gaming and has rejected challenges to retrospective tax demands worth over Rs 1.5 trillion. Review petitions have been filed by Play Games24x7, Junglee Games and Sachiko Gaming Pvt. Ltd. through law firm Lakshmikumaran & Sridharan.
As per media reports, the petitions have been filed following the Supreme Court’s 27 May ruling by a bench of Justices J.B. Pardiwala and R. Mahadevan, which has upheld the constitutional validity of the 28% GST levy and has validated retrospective tax demands issued by the Directorate General of GST Intelligence (DGGI), estimated at over Rs 1.5 trillion.
A review petition has remained a limited legal remedy through which the Supreme Court has been asked to reconsider its own judgment on grounds such as an apparent error on the face of the record or the discovery of important new evidence. Unlike an appeal, it has not allowed the entire case to be re-argued and has usually been decided by the same bench in chambers. If sufficient grounds have been found, the court may decide to hear the matter in open court.
The Supreme Court has held that online gaming, fantasy sports and other real-money games involving pooled stakes have constituted taxable actionable claims arising from betting and gambling under the GST law. It has also ruled that online gaming operators have not merely acted as intermediaries facilitating transactions between users but have been suppliers of actionable claims.
The bench has also rejected the industry’s argument that GST should have been payable only on platform fees or gross gaming revenue and has instead held that the tax has been applicable on the full face value of bets or entry amounts. It has accepted the Centre’s contention that the 2023 GST amendments have only clarified the existing legal position and have not introduced a fresh levy, thereby validating retrospective tax demands.
The dispute has begun after the DGGI issued GST notices totalling over Rs 1.5 trillion to several online gaming companies, alleging they had paid GST only on platform commissions rather than on the total value of user deposits and bets. Gaming companies, including Games24x7, Head Digital Works, Baazi Networks and the E-Gaming Federation, have challenged the notices before various high courts before the matters were transferred to the Supreme Court. They have argued that the 28% GST on the full face value should have applied only from 1 October 2023, after amendments approved by the GST Council came into force.
According to the review petition filed by Head Digital Works Pvt. Ltd., the parent company of online gaming platform A23, the company has argued that if the judgment is not reviewed, it will place a significant financial burden on the industry. It has also contended that the judgment has classified both skill-based and chance-based games as betting and gambling without recognising the established legal distinction between the two.
The company has further argued that the judgment has not discussed the distinction between games of skill and games of chance and has claimed that this has violated Article 14 of the Constitution, which guarantees equality before the law and equal protection of the laws.
According to the industry, the 2023 GST amendments have introduced a new tax regime and therefore should not have been applied retrospectively. The Centre has maintained that the amendments have only been clarificatory, a view that has been accepted by the Supreme Court.
The ruling has carried significant financial implications for the industry. Legal experts have warned that the tax demands have exceeded the cumulative revenues of several gaming companies, raising concerns that recovery proceedings could push financially stressed firms towards insolvency unless relief is granted.
With the review petitions now filed, the companies have made a final attempt to request the Supreme Court to revisit its ruling. The court will first examine whether the petitions have disclosed sufficient grounds for review. If the review petitions are dismissed, the 27 May judgment will remain binding.
