Indian Gaming Industry Brings Arguments to GST Case at SC

Image: PokerDangal.com.

The legal challenges against the active indirect tax regime in India over wagers in casinos, horse races, lotteries, and online money games and its retrospective application for the period before October 2023 received more light in the beginning of August, when one more case was added to the batch of writ petitions against the DGGI (Directorate General of GST Intelligence, India’s primary indirect tax enforcement authority) pending at the Supreme Court.

Xeta Networks ₹300 Crore Case Tagged with Gameskraft Batch

On the 2nd of August 2024, the Supreme Court three-member bench comprising the Chief Justice of India (CJI) Dhananjaya Y. Chandrachud and justices Jamshed Burjor Pardiwala and Manoj Misra heard the plea by Xeta Networks Private Limited (Xeta) and ordered the case to be tagged with the other litigations revolving around the 28% gaming GST over full ticket value.

Xeta received their show-cause notice (SCN) from the DGGI on the 30th of November 2023, alleging GST evasion to the tune of ₹300 crore through the Poker Dangal game for the period between December 2017 and September 2020.

This date puts Xeta’s case among the 71 SCNs demanding a total of ₹1,12,332 crore plus penalties and interest from the homegrown online money gaming industry, which Minister of State for Finance Pankaj Chaudhary disclosed in the Rajya Sabha in early December 2023.

Similarly to the other claims by the DGGI, Xeta had been paying 18% GST over its GGR (Gross Gaming Revenue), and the SCN is asking for the reasons why 28% GST was not paid over the cumulative value of all bets on the money game.

Not Just the Retrospective Action, Any GST on Prize Money Is Unconstitutional

Like the other industry players, Xeta’s petition challenges not only the retrospective application of the 2023 amendments to GST legislation and the received show-cause notice but also the constitutional validity of Goods and Services Tax being levied on actionable claims.

“Interestingly, the provisions for valuation of online gaming services have been incorporated only from 2023 and any demand with respect to the earlier periods is not sustainable as the provisions for Online Gaming companies are incorporated only with effect from 29th September, 2023,” prominent Indian lawyer Abhishek A. Rastogi, who represented Xeta at the hearing on August 2nd, told the Supreme Court bench.

Xeta’s counsel pointed out that the DGGI was not interested in taxing the company’s revenues but wanted to tax the betting amounts that players use to play with, and the SCN demanded a 28% tax on the supply of actionable claims.

The writ petition claimed that the imposition of GST on actionable claims contained in Section 9 when read together with Section 2(52) of the CGST Act, 2017, is beyond the legislative competence of the National Parliament.

Lawyer Rastogi’s plea also challenges the constitutional validity of Section 15(5) of said Act as it delegates excessive power to determine the value of taxable supply, violating articles 14, 19, and 21 of the Constitution, as well as Section 74 of the CGST Act and Rule 31A(3) of the CGST Rules

Where Is the Actionable Claim?

“If one assumes there is an actionable claim, who is supplying it to whom? Where is the supply of actionable claims?” Senior Advocate Harish Salve, appearing for some of the petitioners, asked the Supreme Court in January.

Now, lawyer Abhishek Rastogi continued with the same question, arguing that the transactions between the platform provider and the players do not constitute a supply of actionable claim, as provided for in Section 2(1) of the CGST ACT when read with Section 3 of the Transfer of Property Act, 1882.

At the same time, the expression “goods” in Article 246A of the Constitution of India does not cover actionable claims, lawyer Rastogi pointed out

“Actionable claims not in the nature of betting and gambling are outside the ambit of GST and Rule 31A is inapplicable in the instant case. Rule 31A applies to supply of goods i.e. actionable claim and does not apply for valuation of provision of intermediary service by way of online software service platforms. Levy of CGST / IGST on supply of goods involved in chance to win is unconstitutional in the absence of machinery provisions,” petitioner’s counsel argued.

“The moot point is whether valuation of the services could be determined by way of the rules when there is no specific provision to apply that kind of value by way of statutory provisions. Further, the arbitrariness is demonstrated by the fact that the tax imposed on these transactions is multiple times, of the turnover of the gaming companies,” Rastogi added.

“The petition has put forth the point that the transaction between the platform provider and the players is not in the nature of actionable claim. Further, the valuation rules have been challenged as these rules cannot go beyond the statutory provisions,” he concluded.