In a significant development, the Supreme Court has deferred the hearing on a group of 27 petitions challenging the imposition of retrospective goods and services tax (GST) on real-money gaming companies. The next hearing is scheduled for July 31.
Earlier this year, the apex court consolidated all pending petitions from nine High Courts regarding notices issued by tax authorities, recognizing the need for an “authoritative pronouncement.”
Chief Justice of India (CJI) DY Chandrachud has stated that the cases will be listed on July 31 for further directions, with a potential hearing on a subsequent date. The court also mandated that all parties submit written submissions prior to the next hearing.
In its landmark 50th meeting in July 2023, the GST Council decided to impose a 28 percent tax on the full face value of online gaming, equating it with casinos and horse racing. This new tax regime, effective from October 1, 2023, replaced the previous 18 percent GST on online gaming, abolishing distinctions between ‘games of skill’ and ‘games of chance.
Following this decision, tax authorities issued notices demanding a staggering GST of Rs 1.12 trillion for the fiscal year 2022-23 and the first seven months of 2023-24, excluding interest and penalties. This prompted 30 petitions from real-money gaming companies, 27 of which have been transferred to the Supreme Court from various high courts. The initial petitioners included Head Digital Works, Games24x7, and Baazi Games, with the GST department also appealing a Karnataka High Court verdict.
In a notable instance last September, the Supreme Court stayed the Karnataka High Court’s judgment that quashed a GST notice against Gameskraft Technology for alleged tax evasion amounting to Rs 21,000 crore. By October 2023, central GST officers had detected total evasion of Rs 1.51 trillion.
CJI Chandrachud emphasized that having multiple High Courts address the same issue could lead to conflicting judgments, thus the Supreme Court’s intervention ensures a unified, authoritative ruling. The Centre had also advocated for transferring the petitions to the Supreme Court, underscoring the necessity for a centralized decision.
GST Levy Impact on E-Gaming Industry
The imposition of a 28 percent GST on online gaming marks a critical juncture for the industry. Previously taxed at 18 percent, the new regime brings online gaming on par with gambling activities such as casinos and horse racing. This substantial increase in tax burden is poised to have far-reaching implications on the sector, potentially impacting its financial viability and operational dynamics.
High Court Transfers and Centralization
The consolidation of petitions by the Supreme Court from various High Courts reflects a strategic move to streamline the legal process and avoid disparate rulings. This centralization underscores the complexity and significance of the case, highlighting the need for a singular, authoritative interpretation of the law.
Tax Authority Notices and Industry Response
The issuance of GST notices demanding Rs 1.12 trillion has been a catalyst for widespread legal challenges from the e-gaming sector. The industry’s response, through multiple petitions, indicates the high stakes involved and the potential financial repercussions of the retrospective tax imposition.
Judicial Precedence and Future Implications
The Supreme Court’s stay on the Karnataka High Court’s judgment against Gameskraft Technology is a pivotal moment in this legal saga. This decision not only sets a judicial precedent but also signals the court’s approach to handling similar cases in the future.
Central Government’s Role
The Centre’s request to transfer petitions from the High Courts to the Supreme Court underscores its interest in a centralized resolution. This move aims to ensure consistency and clarity in the judicial process, reflecting the government’s stance on the retrospective GST imposition.
The outcome of this case will be closely watched, as it holds significant implications for the future of the e-gaming industry and the broader interpretation of GST laws. The next hearing on July 31 will be a critical step in this ongoing legal battle.
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