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Sep 27 – The online gaming industry is facing renewed scrutiny as tax authorities issue multiple demand notices and show-cause notices alleging unpaid Goods and Services Tax (GST). According to sources, the Directorate General of Goods and Services Tax Intelligence (DGGI) has served pre-show-cause notices to at least six online gaming companies.
One prominent company, Dream11, has reportedly received four such tax demands totaling Rs 18,000 crore. These notices include a tax demand of Rs 6,000 crore and approximately Rs 12,000 crore in interest and penalties. Dream11 is said to be in discussions with the DGGI to address these issues.
The DGGI alleges irregularities related to the classification of online fantasy sports gaming activities. It claims that Dream11 did not submit the required documents despite multiple notifications. The DGGI initiated an inquiry against Dream11 in September 2018 and conducted a detailed inspection on September 14, 2023. Dream11 provided documents from the state government of Maharashtra on September 12, 2023. Final Audit Reports were issued by Maharashtra State authorities on January 10, 2022, and January 12, 2023.
In response, Dream11 filed a writ petition with the Bombay High Court challenging the show-cause notice issued by Maharashtra State GST Audit authorities. The company argued that it failed to pay 28 percent GST on the face value of bets collected between July 2017 and March 2022. It also contested the characterization of its services as gambling and objected to the taxation of the entire Contest Entry Amount, deeming it ‘arbitrary and unreasonable.’
Sources indicate that more such notices are expected to be issued soon, with intimation notices already sent to at least six online gaming companies, including Games 24X7, a digital skill gaming company. Industry insiders suggest that the total tax demands across the industry could exceed Rs 1 lakh crore. The DGGI has asked companies to clarify their positions before final notices are issued.
This development follows a recent Supreme Court stay on a Karnataka High Court order that had quashed a show-cause notice by the DGGI, requiring Gameskraft to pay additional GST of Rs 21,000 crore. Experts believe that this stay has emboldened GST authorities to issue similar notices to other companies. The government is expected to apply GST law uniformly to other gaming companies, and these companies will need to comply with the law. Dream11 has declined to comment on the matter.