HC orders no coercive action on online gaming companies by GST dept until GoM clarity
1st October 2021
The Punjab and Haryana High Court bench comprising of Justice Ajay Tewari and Justice Alka Sarin has directed the GST department to not take any coercive action against an online gaming operator Witzeal Technologies Private Limited till an empowered Group of Ministers (GoM) set up to look into online gaming, casinos and lotteries submits its report.
The GST Council had constituted a 7 member GoM in May headed by the then Gujarat Deputy Chief Minister Nitin Patel to examine whether any change in legal provisions is required for valuation of services provided by online gaming, racecourses, and casinos. The GST Council had set four-point terms of reference for the GoM which includes examining the taxability of certain transactions in casinos. The GoM was later increased in June to 8 members with the addition of the Telangana finance minister. The GoM was supposed to submit its report within six months. Considering Nitin Patel is no more in the Gujarat cabinet, the time limit for submission of the report by GoM may be extended.
The valuation of supplies in the casino and gaming industry has been a contentious issue ever since the introduction of GST in 2017. In many instances, the casino operators are compelled to pay 28% GST on entire bet amounts while commission or processing charges are the only amounts they are finally entitled to.
In the present case, the GST authorities had sought payment of GST from the petitioner calculated on the full amount of wager instead of commission or processing charges. In December last year, the Maharashtra AAR vide order dated 15 December 2020 held that online gaming falls under the category of Online Database and Retrieval (‘OIDAR’) service under GST and attracts GST at 18% of the supplies.
On March 6, 2020, in the case of State of Maharashtra v. Gurdeep Singh Sachar & Ors, a 3-judge bench headed by then Chief Justice of India SA Bobde had stayed the operation of a Bombay High Court judgment ruling Dream11 to be a game of skill and that it was paying Goods and Services Tax (GST) appropriately, based on a Special Leave Petition (SLP) filed by the state of Maharashtra, which will be decided by an appropriate bench. The present order of Punjab and Haryana HC gives a sign of relief to gaming companies in Punjab and Haryana who are uncertain about the amount of GST payable.