Dream Sports, the parent company of real money gaming major Dream11, has challenged potentially massive tax evasion show cause notices issued to it by GST authorities before the Bombay High Court, MoneyControl reported. The notices possibly allege that the company didn’t pay 28% GST on the full face value of bets placed in its games, as recently mandated by the GST Council in its controversial tax hike for the real money gaming sector.
The tax evasion claims could be Rs. 25,000 crore, or as high as Rs. 40,000 crore, both of which are significantly higher than the Rs. 21,000 crore notice levied against another gaming company Gameskraft last year.
Last Friday, another gaming company Delta Corp received a similar retrospective tax evasion notice to the tune of Rs. 16,822 crore for the period of July 2017 to March 2022. Delta Corp announced in an exchange filing that it may challenge the tax evasion notice:
“The amount claimed in the DG Notice is inter alia based on the gross bet value of all games played at the casinos during 2017-2022,” the filing said. “Demand for GST on gross bet value, rather than gross gaming revenue, has been an industry issue and various representations have already been made to the Government at an industry level in relation to this issue…The company has been legally advised that the tax demand is arbitrary and contrary to law, and the company will pursue all legal remedies available to it to challenge such tax demand and related proceedings.”
The GST Council’s decision taxes online games played for stakes at par with gambling games at 28%. Companies offering real money games of skill played for stakes will now be taxed under the higher slab. The move has been described as a body blow to the industry, with player returns on bets significantly diminished post the hike. Real money gaming companies have laid off swathes of workers to make ends meet.
Some weeks after the hike, GST Authorities also approached the Supreme Court to review the Karnataka High Court’s verdict from earlier this year quashing Gameskraft’s Rs. 21,000 crore GST evasion notice.
Last year, the Authorities argued that Gameskraft’s online rummy for stakes games amounted to gambling and should be taxed at 28%. While quashing this order, the High Court held that games of skill cannot be construed as gambling games, regardless of whether played online or offline, or for stakes or not.
In their Supreme Court challenge, the GST Authorities argued that the Karnataka High Court’s verdict goes against decades of settled law on the matter. They added that as long as a game involves wagering on an unknown outcome, it constitutes gambling irrespective of whether it is a game of chance or skill.
While issuing notice in the case a few weeks ago, the Supreme Court stayed the High Court’s order. Reports subsequently emerged that the Central Board of Indirect Taxes and Customs planned to send tax evasion show cause notices to 40 skill gaming companies.
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Note: this piece was updated on 29/9/23 at 10:00 am to correct the figure “Rs 40,0000 crore”. The amount is Rs. 40,000 crore.
