Once again, the online gaming industry finds itself in the midst of controversy, as tax authorities have issued multiple demand notices and show-cause notices against several companies, alleging unpaid Goods and Services Tax (GST). According to sources familiar with the matter, the Directorate General of Goods and Services Tax Intelligence (DGGI) has served pre-show-cause notices to at least six online gaming companies.
Among these companies, fantasy gaming giant Dream11 has received no less than four such tax demands, totaling a staggering Rs 18,000 crore. These notices comprise a tax demand of Rs 6,000 crores, along with an approximate Rs 12,000 crore in interest and penalties. It's worth noting that Dream11 is actively engaging with the DGGI to resolve the matter amicably.
What DGGI alleges
According to insiders, the DGGI has raised concerns about irregularities related to the incorrect classification of online fantasy sports gaming activities. They assert that Dream11 failed to submit the required documents despite receiving multiple notifications from the DGGI.
The DGGI initiated an inquiry against Dream11 in the Mumbai Zone back in September 2018. A comprehensive inspection by the DGGI was conducted on September 14, 2023. During this inspection, Dream11 provided and submitted documents (Form GST DRC 01 for FYs 2017-18 and 2018-19) issued by the Maharashtra state government on September 12, 2023.
As per information provided by Dream11, Final Audit Reports were issued by the Maharashtra State authorities on January 10, 2022, and January 12, 2023.
Dream 11 files writ petition
In response to these actions, Dream11 has filed a writ petition with the Bombay High Court challenging the show-cause notice issued by the Maharashtra State GST Audit authorities. In their petition, the company argues that they have not failed to pay the 28 percent GST on the face value of bets collected between July 2017 and March 2022.
Furthermore, they contest that the notices aim to impose and recover differential GST based on the assumption that the services provided constitute gambling. Dream11 also questions the fairness of including the entire Contest Entry Amount in these tax demands, labeling it as 'arbitrary and unreasonable.'
Also Read: Supreme Court stays Rs 21,000 cr GST notice to Gameskraft
Sources suggest that many more such notices are in the pipeline, with intimation notices already dispatched to at least six online gaming companies, including digital skill gaming firm Games 24X7. Tax authorities have issued notices indicating a determined tax amount payable through the DRC-01A form.
Industry insiders speculate that the cumulative tax demands across the industry could reach over Rs 1 lakh crore. In cases where intimation notices have already been sent, the DGGI has requested companies to clarify their position and provide explanations before final notices are issued.
This development follows a recent Supreme Court decision to stay a Karnataka High Court order that quashed a show-cause notice from the DGGI, demanding an additional GST payment of Rs 21,000 crore from Gameskraft. Experts suggest that this stay has emboldened GST authorities to issue similar notices to other companies.
Government authorities intend to apply GST laws consistently to other gaming companies, akin to their approach with Gameskraft. Consequently, all these gaming companies are expected to comply with the law. Dream11 has declined to comment on the matter.
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