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Online gaming: Wait for GoM’s decision, High Court tells GST authorities

Online gaming: Wait for GoM’s decision, High Court tells GST authorities

The Punjab and Haryana High Court has directed the goods and service tax authorities to not take any coercive action against an online gaming company till an empowered Group of Ministers (GoM) set up to look into online gaming, casinos and lotteries gives its recommendations.

The company had moved court against state GST authorities that had sought payment of tax on the full bet amount instead of only the commission or processing charges, and recovery of the tax amount.

“…no adjudication and no coercive steps would be taken against the petitioner till such time the necessary clarification is issued by the empowered Group of Ministers but they may be permitted to investigate the matter so that if and when the clarification comes they would not have to necessarily reinvent the wheel,” stated the order issued by Justices Ajay Tewari and Alka Sarin, on September 29.

The decision puts the focus on online gaming companies that have seen a spike in user bases and consumption of services since the pandemic, even as ambiguities in valuation of services and their taxability remain issues of debate.

“This will provide a sigh of relief to not only other online gaming companies but also other companies in different sectors which are facing tough investigation with a threat of coercive recovery”, said Abhishek Rastogi, partner at Khaitan & Co, who is arguing for online gaming company and other companies.

Taxation on online games has been a contentious issue. Experts said that entities engaged in online gaming, casino, lotteries and racing face a predicament on account of statutory prescriptions governing valuation as they are impelled to charge GST on the entire bet amount, even when the commission or processing charges are a fraction of the actual bet amount.

According to a recent Maharashtra Authority of Advance Ruling (AAR) ruling, online games are classifiable under online information and data-based access or retrieval services or OIDAR services, under GST which is taxable even if the cloud is located outside India. However, contention is open on whether recent games like Dream 11 that offer fantasy sports gaming services qualify as a game of skill or gambling.

While the government has recognised the issue, it had referred the matter to be examined by the GST Council, the highest decision making body for indirect taxes, which in turn constituted a GoM.

The seven-member GoM is examining whether any change in legal provisions is required for valuation of services provided by online gaming, race courses and casinos. It will also examine the taxability of certain transactions in casinos related to present legal provisions and orders of Courts.

The GoM, formed in May-end, was given six months to provide its recommendations.

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