The Supreme Court has taken notice of the petitions filed by Head Digital Works and Games 24/7, two prominent online gaming companies. These pleas challenge the government’s decision to retroactively impose a 28 percent Goods and Services Tax (GST) on the total value of bets placed, rather than on the gross gaming revenue.

As reported by Money Control, the Court has directed the Centre and the GST department to submit their responses within two weeks. Anticipated to be heard in a few months, the case has prompted the GST department to seek a transfer of all related cases from various high courts to the Supreme Court.

Representing the online gaming companies, senior advocate Harish Salve appeared before the Court, countered by Additional Solicitor General Venkatraman representing the GST department and Union of India.

In a prior instance on December 15, the Court declined interim relief against the GST demand notices served to Head Digital Works and Games 24/7. The court however, indicated a willingness to review the constitutional validity of the government’s decision to retrospectively levy 28 percent GST on the full value of bets, effective from October 1.

This legal battle stems from a disagreement over GST rates for online gaming companies. While the firms argue that the 28 percent tax applies only from October 1, 2023, the government contends that the revision merely clarified an existing law. Hence, the government declares that the tax demand isn’t backdated.

In August 2023, the GST Council amended the law, specifying that all online games involving bets, regardless of skill or chance, would attract a 28 percent GST rate based on the total value of bets placed, not on the gross gaming revenue. Consequently, online gaming firms received substantial tax demands, prompting concerns that this imposition could potentially ruin the entire industry. Show-cause notices alleging tax evasions amounting to Rs 1 lakh crore were served to these companies in 2023.

September 2023 saw the apex court halting the judgment of the Karnataka High Court, which had nullified a GST notice against Bengaluru-based online gaming company Gameskraft Technology, citing an alleged evasion of Rs 21,000 crore.

Gameskraft Technology Private Limited (GTPL) faced accusations of promoting online betting through various games like Rummy Culture, Gamezy, and Rummy Time without issuing invoices to customers, as alleged by officials.

GST authorities imposed a 28 percent tax on betting amounts of nearly Rs 77,000 crore, citing GTPL’s involvement in allowing players to place bets using money stakes on online card games.