Online gaming firms move SC for review of 28% GST verdict

Online gaming companies have moved the Supreme Court seeking review of its 27 May judgment upholding the constitutional validity of the 28% goods and services tax (GST) levy on online gaming and rejecting challenges to retrospective tax demands worth over ₹1.5 trillion.

According to information available on the Supreme Court website and reviewed by Mint, the petitions were filed on Tuesday by Play Games24x7, Junglee Games and Sachiko Gaming Pvt. Ltd. The petitions have been filed through law firm Lakshmikumaran & Sridharan, urging the apex court to reconsider its ruling.

A review petition is a limited legal remedy through which the Supreme Court is asked to reconsider its own judgment on grounds such as an apparent error on the face of the record or the discovery of important new evidence.

Unlike an appeal, it cannot be used to re-argue the entire case and is usually decided by the same bench in chambers. If the court finds merit in the plea, it may decide to hear the matter in open court.

The review petitions arise from the Supreme Court's 27 May judgment delivered by a bench of Justices J.B. Pardiwala and R. Mahadevan. The ruling was a major setback for the online gaming industry as it upheld the constitutional validity of the 28% GST levy and validated retrospective tax demands issued by the Directorate General of GST Intelligence (DGGI), estimated at over ₹1.5 trillion.

The court held that online gaming, fantasy sports and other real-money games involving pooled stakes constitute taxable actionable claims arising from betting and gambling under the GST law. It also ruled that online gaming operators are not merely intermediaries facilitating transactions between users but are suppliers of actionable claims.

Rejecting one of the industry's key arguments, the bench held that GST is payable on the full face value of bets or entry amounts and not merely on platform fees or gross gaming revenue. It also accepted the Centre's argument that the 2023 GST amendments only clarified the existing legal position and did not introduce a fresh levy, thereby validating retrospective tax demands.

The dispute began after the DGGI issued GST notices totalling over ₹1.5 trillion to several online gaming companies, alleging they had paid GST only on platform commissions rather than on the total value of deposits and bets placed by users.

Gaming companies, including Games24x7, Head Digital Works, Baazi Networks and the E-Gaming Federation, challenged the notices before various high courts before the matters were transferred to the Supreme Court. They argued that the 28% GST on the full face value should apply only from 1 October 2023, after amendments approved by the GST Council came into force.

According to the review petition filed by Head Digital Works Pvt. Ltd, the parent company of the online gaming platform A23, stating that if the judgment is not reviewed, it will put a financial burden on the industry “In the absence of this relief, the industry at large will be irreversibly and severely impacted, running the risk of bankruptcy,” mentioned the petition seen by Mint.

The company also argued that once players stake money, the judgment classifies both skill-based and chance-based games as betting and gambling without recognising the long-established legal distinction between the two.

“The entire judgment proceeds without an iota of discussion on what is a game of skill and what is a game of chance…This itself is violative of Article 14 and against the established jurisprudence by the Supreme Court.”

Article 14 of the Constitution of India guarantees equality before the law and equal protection of the laws.

According to the industry, the amendments introduced a new tax regime and therefore could not be applied retrospectively. The Centre maintained that the amendments were only clarificatory, a view that was accepted by the Supreme Court.

The ruling has significant financial implications for the industry. Legal experts have warned that the tax demands exceed the cumulative revenues of several gaming companies, raising concerns that recovery proceedings could push financially stressed firms towards insolvency unless they receive some form of relief.

With the review petitions now filed, the companies are making one last attempt to request the Supreme Court to revisit its ruling. The court will first examine whether the petitions disclose sufficient grounds for review. If the review petitions are dismissed, the 27 May judgment will remain binding.