Entry-Level GST Ruling May Cut Tax for E-Gaming Firms

E-gaming companies in India are in the midst of a legal battle regarding their Goods and Services Tax (GST) liability. The key issue revolves around whether the 28% GST should be applied to the full face value of bets only at the entry level or at every stage of betting.

Here are some key points to be considered

• Background: E-gaming companies, including Gameskraft Technology Private Ltd (GTPL), have been facing tax notices from the tax department based on the calculation of GST for each bet, rather than just at the entry level.
• GST Council's Decision: The GST Council, which is responsible for deciding GST rates and regulations, recently determined that the 28% tax should be applied only at the entry level of bets, not at every stage. This decision is seen as providing stronger grounds for e-gaming companies to challenge the tax notices they received in the past.
• Legal Challenge and High Court Order: Some e-gaming companies, including GTPL, have contested the tax notices in court. The Karnataka high court set aside a Rs 21,000 crore tax notice to GTPL. The Central government filed a special leave petition (SLP) challenging this order.
• Impact on Tax Liability: If the 28% tax is applied only at the entry-level face value of bets, the tax liability for these companies, including Gameskraft, would be significantly reduced from the previously calculated amounts.
• Prospective vs. Retrospective Application: One point of contention is whether the GST Council's decision will apply only to future cases (prospectively) or also to cases that were investigated earlier (retrospectively).
• Clarity Needed: There is a need for clarity on how the new decision will affect previously investigated cases and whether they will be re-evaluated based on the entry-level face value bets or each individual bet.
• Appeal for Clarification: GST field formations have requested clarification from the Central Board of Indirect Taxes and Customs (CBIC) regarding these issues before issuing new tax notices to gaming platforms.
• Council's Decision on Valuation: The GST Council decided that the valuation of supply of online gaming and actionable claims should be based on the amount paid to the supplier by the player, excluding the amount entered into games/bets out of winnings of previous games/bets.
• Previous Tax Rates: Prior to this decision, the online gaming industry and some horse race clubs were paying GST at different rates (18% and 28%) on various components of their operations.
• Industry Impact: The e-gaming industry has been affected by these changes in GST rates and regulations. The initial decision to impose 28% GST on online gaming was met with resistance from the industry, but subsequent representations led to certain relaxations, such as exempting the redeployment of winnings from online gaming.
• Legal Dispute: The Directorate-General of GST Intelligence (DGGI) claims that Gameskraft's platform engaged in betting and gambling activities, while the company argues that these were skill gaming activities. The high court had ruled in favor of Gameskraft, quashing the tax notice.

In summary, the e-gaming industry in India is navigating a complex situation involving GST rates and regulations. The recent decision by the GST Council to apply GST at the entry level rather than for each individual bet provides potential grounds for e-gaming companies to challenge previous tax notices. However, there are still uncertainties regarding the retrospective application of this decision and the implications for previously investigated cases.