The Supreme Court on Friday stayed all tax notices issued by the revenue department to online gaming companies, estimated at more than ₹1.5 trillion, on pleas by both parties and scheduled a hearing on the matter for 18 March.

The gaming companies and the revenue department had sought the stay, with the revenue department seeking to prevent the expiry of several notices by the first week of February.

The bench comprising Justice JB Pardiwala and Justice R. Mahadevan granted the stay in the interest of all parties after the revenue department expressed concern that delaying action on the notices could make them time-barred, preventing the government from collecting the tax demanded.

Under the law, failure to act on show-cause notices within a specified timeframe renders them void. For example, notices issued by the Directorate General of GST Intelligence to online gaming companies related to FY18 will expire on 4 February 2025, making them invalid. The Supreme Court's stay now extends the deadline for action until the court rules on the matter.

"The Supreme Court's stay provides much-needed relief to gaming companies by protecting them from coercive recovery actions and addressing concerns over the impact of aggressive tax demands on their operations," said Abhishek A Rastogi, the lawyer representing the gaming companies in the case. "At the same time, it safeguards the interests of the revenue [department] by ensuring that the demands do not become time-barred during litigation, preserving the scope for legal clarity." 

Gaming companies including Games 24x7, Head Digital Works, Play Games 24x7 Pvt Ltd, Baazi Networks Pvt Ltd, and the E-Gaming Federation filed 51 writ petitions in the Supreme Court, challenging the imposition of GST on them.

N. Venkataraman, additional solicitor general for revenue, told the court the amount demanded from the gaming companies was more than ₹1.5 trillion.

The top court had previously declined an interim stay on the notices and decided to transfer all related cases from various high courts to itself. In one instance, the court stayed a Karnataka high court judgement that quashed a GST intimation notice amounting to ₹21,000 crore to Gameskraft.

In August, the GST Council amended the law to impose a 28% tax on the "full face value" of bets or entry amounts in online games, effective October 2023. Online gaming companies argued that the 28% tax should apply only from 1 October 2023. However, the government contended that the revision clarified an existing law, making the tax demand non-retrospective.

Actionable claims

Gaming companies also argued that recurring amounts such as entry fees should not be considered actionable claims subject to tax. Senior advocate Harish Salve, representing the gaming industry, argued that since the games are played between players and the companies merely charge a platform fee, the winnings and prize pools held by the companies should not be subject to GST.

The gaming companies emphasised that the tax claims against online gaming companies far exceed their reported net revenue over the past five years, threatening to push the industry into bankruptcy.

An actionable claim is one made in court for a sum of money owed by one party to another. In online gaming, the prize pools are held in escrow accounts by gaming operators, and the claim of a winner on the money becomes an actionable claim under law. While actionable claims were not previously applicable to online gaming, they were included under the amended GST laws effective from 1 October 2023.

Experts said that without the stay order, the tax authorities may continue to issue demands, potentially destabilising the growing online gaming sector.