NEW DELHI: Legal experts are raising concerns about the demands placed on online gaming and gambling companies in India, totalling over Rs 1 lakh crore (1 trillion), for goods and services tax (GST).
They believe these notices may not withstand legal scrutiny due to several reasons including the retrospective nature of the tax demands.
Experts argue that demanding taxes for past periods raises doubts about the legality of such actions. Moreover, these demands are seen as disregarding the well-established legal distinction between games of skill and games of chance. This distinction has been recognized and upheld by Supreme Court and High Court judgments in the past.
Sudipta Bhattacharjee, a partner at Khaitan & Co, said affected gaming companies would challenge these notices in their jurisdictional high courts. He added that the entire legal basis of the demands appears to be questionable and in violation of previous court rulings.
The notices claim that players participating in games of skill for monetary stakes amount to gambling based on the presence of three elements: the stake, an element of uncertainty, and a higher reward. However, legal experts argue that this test would classify any tournament or competition involving entry fees and prize money as gambling, even if the games played are purely skill-based, such as chess or cricket.
Experts highlight that the tax department seeks to collect GST amounts significantly higher than the total revenues earned by these companies, which appear legally inconsistent and arbitrary. As per Bhattacharjee, the companies may face challenges and delays in navigating through the litigation process, which in turn, would affect their funding and operations.
“Companies in receipt of such notices based on recent amendments, pertaining to past periods, will have to challenge the retrospective demands at the outset before the High Courts. The GST council and GoM took more than 2 years to deliberate and clarify the issue. This indicates that the underlying issue is not of non-compliance or breach but arises on account of lack of clarity,” said Shashi Mathews, Partner, INDUSLAW.