Online Gaming Firm Vs GST Authorities: What Are The Company’s Demands?

A three-judge bench of the apex court directed that the petition be consolidated with other online gaming-related cases pending before the Supreme Court, filed against GST demands.

Exclusive details shared with NDTV Profit reveal the specific demands of the online gaming company involved.

Firstly, the online company is asking to declare the tax on actionable claims unconstitutional. The company is arguing that this tax is beyond what Parliament is allowed to legislate.

Secondly, it has asked the court to declare Section 15(5) of the GST Act unconstitutional. This section allows the central or state government to set rules for determining the value of taxable supplies, which the petitioner believes gives too much unchecked power and violates constitutional rights.

The petitioner is asking the court to rule that Rule 31A of the GST Rules is unconstitutional. This rule sets how the value of lottery, betting, gambling, and horse racing supplies should be calculated. The petitioner argues that this rule exceeds what Parliament is allowed to set and infringes on constitutional rights.

Advocate Abhishek A Rastogi, representing the online gaming company, argued in the Supreme Court on Friday that the current tax on these transactions is excessively high as compared to the company's turnover.

He also submitted that rules for valuing online gaming services were only introduced in 2023, so any tax demands from before this date are not valid.

Additionally, Rastogi argued that the transaction between the gaming platform and players should not be considered an "actionable claim" and that the valuation rules should not exceed what is provided by law.

In January, the Supreme Court agreed to hear challenges against the retrospective application of a 28% GST rate on online gaming companies. These companies dispute the tax department's decision to apply this rate to bets placed before Oct. 1, 2023. The GST Act changes introduced in August included online gaming as an actionable claim, subject to the 28% tax from Oct. 1.

The tax applies at the deposit stage for all games with stakes, regardless of whether they are based on skill or chance. The government argues that the tax liability existed before the new rules but was only clarified, leading to substantial tax demands for earlier periods. This has caused significant issues for the companies, which expected the new rate to apply only from Oct. 1.

The Supreme Court had previously stayed a Karnataka High Court ruling that had quashed a massive Rs 21,000-crore tax notice against Gameskraft Technologies Pvt.