DGGI raises Rs 55,000-crore tax demand from Dream11, other online gaming companies
Sep 26, 2023
Synopsis
This includes a notice of approximately Rs 25,000 crore to Dream11, making it possibly the largest indirect tax notice in India. More notices are expected, and the total GST demand from RMG companies could reach Rs 1 lakh crore. The notices were issued after the recent increase in GST rates for real money games to 28%. The companies have the option to appeal the notices.
The Directorate General of GST Intelligence (DGGI) has sent out a dozen pre-show cause notices to online real money gaming (RMG) companies over goods and services tax dues of about Rs 55,000 crore, said people with knowledge of the matter. These include a GST notice of over Rs 25,000 crore to fantasy sports platform Dream11, possibly the largest indirect tax notice served in the country, they said.
With more notices expected in the coming weeks, the total GST demand raised by DGGI from RMG companies might touch Rs 1 lakh crore, said industry executives.
An intimation of tax ascertained as payable through the DRC-01 A form is issued by the authorities. Called a pre-show cause notice in GST parlance, it is issued before the department serves a show cause notice.
Those served the pre-show cause notices include Play Games24x7 and its affiliates, and Head Digital Works, said the people cited, who did not wish to be identified.
Dream11 and Head Digital Works declined to comment on the matter. ET’s queries emailed to other companies involved didn’t elicit a response till press time.
According to industry sources, Dream11 has moved the Bombay High Court against the pre-show cause notice issued to it.
The notices were issued after the recent change in GST rates for real money games increased the levy to 28% on the total bet placed at entry level of each gaming session on RMG platforms.
“While Dream11 has been served a pre-show cause of over Rs 25,000 crore on Monday, a similar notice seeking GST dues of Rs 20,000 crore has been issued to Play Games24x7 and its affiliates, including RummyCircle and My11Circle. A pre-show cause notice raising a demand of over Rs 5,000 crore has been served to Head Digital Works,” one of the persons told ET.
“While Dream11 has been served a pre-show cause of over Rs 25,000 crore on Monday, a similar notice seeking GST dues of Rs 20,000 crore has been issued to Play Games24x7 and its affiliates, including RummyCircle and My 11 Circle. In the case of Head Digital Works a pre-show cause notice raising a demand of over Rs 5,000 crore has been served,” one of the persons told ET.
Challenges & More Notices
The previously largest such demand, at Rs 21,000 crore, was sent to Gameskraft, which contested the levy in the Supreme Court. The apex court on September 6 stayed a high court order quashing the GST demand. The next hearing is expected by the end of the month. On September 16, Gameskraft shut down its superapp Gamezy.
Play Games24x7 runs a variety of online games where users can wager on the outcome. Among the company’s major products are fantasy game My11Circle, a competitor of Dream11, and online platform RummyCircle, a competitor of Gameskraft game RummyCulture.
Hyderabad-based Head Digital Works runs a number of real money games, including A23 Rummy as well as poker, pool and fantasy sports.
According to the person cited earlier, the DGGI’s Mumbai unit alone issued around seven pre-show cause notices between Friday and Monday, asking the companies why a GST demand shouldn’t be raised. “More pre-show cause notices will follow suit, including from Delhi, Hyderabad and Bengaluru units. These companies now have five to seven days to reply to the notices. Once their replies are studied, show cause notices with GST demand will be raised,” said the person.
The Mumbai DGGI has been investigating RMG apps for more than a year and has sent them notices during the course of the probe. The companies have made representations before the authorities, contesting the GST levied. “However, notices have been served after the recent GST notification, which fixed the GST at 28% on the full face value of bets placed on online games,” said the person.
The companies have the option to appeal before the adjudicating authority in the event show cause notices are issued and they don’t agree to the demand raised.
On September 6, the Supreme Court stayed an earlier Karnataka High Court judgement against the Rs 21,000 crore GST demand against Gameskraft. The court posted the matter for further hearing three weeks later and asked the parties to file compilations of judgements and other related documents. On September 16, Gameskraft shut down its super app product Gamezy.
[The Economic Times]
