In a significant legal development, the Supreme Court of India on Friday granted a stay on GST (Goods and Services Tax) show-cause notices issued to numerous online gaming companies. This interim relief comes as the sector grapples with heightened scrutiny from tax authorities.
The ruling, delivered by a bench led by Justice JB Pardiwala, precedes a final hearing on the matter scheduled for March 18. The decision provides much-needed respite to the online gaming industry, which has been reeling under financial and regulatory pressures.
Tax Evasion Allegations
The Directorate General of GST Intelligence (DGGI) issued 71 notices to gaming companies, accusing them of evading GST worth ₹1.12 lakh crore during 2022-23 and the first seven months of 2023-24. These notices served under Section 74 of the GST Act, enable authorities to impose penalties of up to 100% of the tax demand. This could escalate the total liability, including interest, to a staggering ₹2.3 lakh crore.
Industry Impact of GST Policy
The online gaming sector has been significantly impacted by a decision from the 50th GST Council in July 2023 to impose a 28% GST on the full face value of online gaming transactions, effective October 1, 2023. This move triggered multiple business shutdowns and layoffs across startups in the industry.
More than 100 entrepreneurs, CEOs, and industry representatives have appealed to the government to reconsider the tax policy, emphasizing its adverse effects on the burgeoning sector.
Legal Battle and Consolidated Petitions
Gaming companies, including industry giants like Gameskraft, Dream11, Probo, and MPL, were among those served with show-cause notices. Some of these firms contested the retrospective tax policy in the Supreme Court. Subsequently, the apex court consolidated 27 writ petitions previously filed across 11 high courts nationwide into a single proceeding.
Way Forward
The Supreme Court’s stay on the notices brings temporary relief to gaming firms, investors, and stakeholders, offering a pause to the financial and operational strain caused by the ongoing tax disputes. The industry now looks ahead to the final hearing in March, which could shape the future regulatory landscape for online gaming in India.
