The Supreme Court’s ruling upholding 28% retrospective GST (goods and services tax) on online gaming firms has shifted the focus from a years-long legal battle to the next big question facing the sector: how and when tax demands of nearly Rs 92,000 crore could crystallise into liabilities.
Wednesday’s ruling, backing tax demands on past transactions, could have major financial implications for the sector.
A lawyer representing one of the large gaming companies involved in the dispute said platforms will now have an opportunity to individually respond to the GST department’s show-cause notices.
“Given the government’s stance, it is likely that the tax department will move ahead with demanding back taxes,” the lawyer said. “Companies can seek a review of the Supreme Court’s order before a larger bench. Even if the GST department issues demand notices, the option to appeal the order remains open.”
However, a senior gaming industry executive, speaking on condition of anonymity, said retrospective applicability of the tax means interest liabilities could continue mounting while adjudication plays out.
“The situation is difficult from both ends because we need to ensure the adjudication process is followed and the department’s calculations are justified. That is where any demand can be challenged,” the executive said. “But the longer this stretches, the larger the amount becomes.”
“Several gaming firms have already shut down and this could push many others without deep pockets into liquidation,” the executive added.
“Even after final demand orders are passed, affected companies may still have limited but important legal remedies available,” said Hardeep Sachdeva, senior partner at corporate law firm AZB & Partners.
“While the core interpretational issue on GST applicability may now be settled, companies could continue to challenge the valuation methodology, retrospective computation, procedural lapses, limitation periods, quantification errors, or principles of natural justice before appropriate forums,” he said.
The centre amended GST laws in August 2023, requiring overseas online gaming companies to register in India from October 1 that year. Gaming firms had sought clarity over retrospective application of the 28% levy on the full value of bets placed, instead of gross gaming revenue.
Companies including Delta Corp, Head Digital Works, and Play Games24x7, along with the E-Gaming Federation, had challenged the government’s move to retrospectively impose GST on the full face value of bets.
Attempts to reduce liability
Tax experts said the ruling narrows legal avenues available to gaming companies but does not completely shut the door on disputes around eventual tax computation.
“Companies could still challenge what constitutes the taxable value of bets or deposits, particularly where amounts do not represent fresh money entering the platform,” said Ankit Jain, partner at chartered accountancy firm Ved Jain and Associates.
“This could include rolled-over winnings, non-cash promotional credits, bonus points, and player-to-player transfers.”
Experts also pointed to potential disputes around limitation periods. Where tax authorities invoked extended limitation windows under section 74 of the GST law by alleging fraud, wilful misstatement, or suppression, companies could argue the issue stemmed from differing legal interpretations rather than deliberate concealment.
If accepted, such arguments could potentially place portions of historical tax demands outside the permissible recovery period, tax practitioners said.
“The practical battleground may now shift from constitutional interpretation to recovery management, interim protection, and restructuring of liabilities,” said Delhi-based lawyer Tushar Agarwal.
“Much will also depend on whether appellate forums grant stays liberally, given the industry-wide implications and magnitude of the demands.”
