RMG firms eye GST relief ahead of Sept 12 Council meet, cite industry practice

Real-money gaming (RMG) companies are stepping up their efforts to secure relief from legacy Goods and Services Tax (GST) liabilities, with the industry expected to make a stronger pitch before the GST Council ahead of its September meeting.

The focus has now shifted from the quantum of tax exposure following the Supreme Court's Gameskraft judgment to a more immediate question: will the government allow the industry to draw a line under the pre-October 2023 tax dispute, or will companies have to face individual adjudication, interest, penalties and recovery proceedings?

The industry is seeking intervention under Section 11A of the Central GST Act, which allows the government, on the recommendation of the GST Council, to waive recovery of tax that was not paid or was short-paid because of a generally prevalent trade practice.

The provision could potentially provide the government with a route to resolve a dispute that has already generated tax demands running into tens of thousands of crores, while avoiding years of litigation and recovery proceedings against companies that, in several cases, have shut down or substantially scaled back operations.

The issue is expected to be closely watched at the GST Council's September 12 meeting.

From Rs 2.5 lakh crore exposure to a legacy liability problem

The Supreme Court's ruling in the Gameskraft case has significantly altered the tax landscape for online gaming companies.

The earlier revenue department methodology had resulted in potential demands of nearly Rs 2.5 lakh crore across the sector. The dispute centered on whether GST should effectively be levied on the value of every bet or wager placed on a platform, rather than on the platform's actual revenue.

The Supreme Court's ruling directed authorities to apply Rule 31B for determining the taxable value, linking it to player deposits and clarifying that winnings reused for gameplay, without being withdrawn and redeposited, would not constitute fresh deposits.

The judgment has therefore substantially reduced the industry's potential exposure. But it has not automatically wiped out the historical tax liabilities that arose under the earlier interpretation.

That has brought RMG companies back to the GST Council.

As e4m had reported earlier, industry stakeholders were preparing to seek a policy intervention on legacy liabilities, arguing that the dispute was an industry-wide interpretational issue rather than a case of deliberate tax evasion.

https://www.exchange4media.com/digital-news/real-money-gaming-firms-seek-gst-council-relief-after-sc-cuts-rs-25-l-crore-tax-exposure-155790.html

Section 11A emerges as industry's preferred route

The industry's preferred solution is now increasingly centered on Section 11A.

Technology and gaming lawyer Jay Sayta said the issue was fundamentally interpretational and that the entire industry had followed a common valuation methodology.

He argued that this makes the matter a fit case for the government to consider relief under Section 11A rather than allowing adjudication proceedings to continue for years.

Section 11A is particularly relevant because the provision was introduced to deal with situations where non-payment or short-payment of GST arose because of a generally prevalent trade practice.

The Central Board of Indirect Taxes and Customs (CBIC) has also been working on rules to operationalise the provision. In June it was indicated that the government was framing the rules, although there was no final decision at that stage on whether the provision would specifically be used for the online gaming sector.

If the mechanism is operationalised, companies could argue that their historical treatment of GST falls squarely within the rationale behind Section 11A: a common industry practice followed for years, backed by legal opinions and without an explicit objection from tax authorities during regular assessments.

‘The industry did not simply refuse to pay tax’

The central argument being prepared by gaming companies is that they were not attempting to evade GST.

Gowree Gokhale, a technology, media and telecommunications lawyer, said the industry had operated on a common legal understanding and had undergone tax assessments over several years.

"The entire sector operated uniformly on the legal premise, backed by formal opinions from senior counsels, and successfully underwent regular tax assessments for years without any interpretive objections from the GST authorities," Gokhale said.

The distinction is important because any relief under Section 11A would be based on the circumstances surrounding the short payment, rather than functioning as a blanket cancellation of a legally established tax liability.

The industry is therefore expected to present the historical dispute as one involving genuine ambiguity over valuation and classification.

Founders now worried about personal liability

The issue has also moved beyond corporate tax liabilities.

Around a dozen RMG founders had separately appealed to the GST Council seeking protection from potential personal liabilities arising from legacy tax demands. Reports said the founders have sought relief from retrospective GST dues as well as interest, penalties and personal liability exposure.

This adds another dimension to the industry's representation.

Under GST law, directors of private companies can face proceedings in certain circumstances where tax dues remain unpaid, particularly where authorities allege gross negligence, malfeasance or breach of duty.

For founders of companies that have already ceased operations, the concern is that a corporate tax dispute could potentially translate into action against personal assets.

The founders' argument is expected to be that they acted in good faith on the basis of the legal position and industry practice prevailing at the time, rather than deliberately withholding tax.

Government faces a recovery-versus-relief dilemma

For the government, the issue presents a difficult policy choice.

On one side is the need to enforce the Supreme Court's ruling and protect tax revenues. On the other is the practical question of how much of the historical tax demand can actually be recovered from companies whose businesses have already been shut down, restructured or materially weakened.

Sayta said many online money gaming companies no longer have the financial capacity to meet retrospective demands because their operations were shut down following the government's intervention in August 2025.

He argued that pursuing recovery could consume significant government resources through years of litigation while leaving a substantial portion of the demands ultimately unrecoverable because of shutdowns or insolvencies.

This is likely to form a key part of the industry's argument before the Council.

In effect, the industry could tell the government that a negotiated or statutory resolution may deliver more certainty than pursuing nominal tax claims that could prove difficult to collect.

Immediate amnesty may still be difficult

Despite the industry's push, an immediate amnesty at the September meeting may not be straightforward.

Sayta has pointed out that the rules required to operationalise Section 11A were still being framed, making immediate relief at the September 12 meeting difficult. However, if the government intends to use the provision, the industry believes the Council should prioritise the issue before the tax proceedings move further.

There is also a legal distinction between the Council recommending relief and the government actually extinguishing liabilities.

Legal experts have said the GST Council can recommend an amnesty or regularisation mechanism, but any waiver or reduction of liabilities would ultimately require the necessary statutory and legislative backing.

Shashi Mathews, partner at CMS INDUSLAW, has said the Council has the constitutional authority to recommend an amnesty scheme for historical demands or regularisation based on prevalent trade practices.

However, he has also cautioned that such relief would be a matter of policy and not a legal entitlement.

Sonam Chandwani, managing partner at KS Legal & Associates, similarly noted that while the Council can recommend measures relating to rates, valuation and exemptions, any reduction or waiver of crystallised liabilities would require corresponding statutory changes.

What happens if GST Council says no?

The alternative is a potentially prolonged adjudication process.

Companies could face individual assessments to determine their actual liability under the Supreme Court's interpretation, followed by interest and penalties.

Shourya Garg, founder of Garg & Garg Tax Associates, said companies would have to deal with GST demands in accordance with the Supreme Court's ruling if no relief is provided.

"The immediate issue would be the determination and recovery of the actual tax liability of each company. Interest and penalties could add significantly to the overall burden," Garg said.

Companies would retain the right to challenge issues such as the calculation of individual demands, the period covered and procedural aspects.

But that could leave the industry facing precisely the regulatory uncertainty it has been attempting to eliminate since the original tax dispute began.

A test of GST's approach to industry-wide disputes

The RMG industry's representation could ultimately become a test case for how the GST regime handles historical disputes arising from a widely followed interpretation of the law.

The industry is not necessarily asking the GST Council to revisit the Supreme Court's ruling. Instead, it wants the government to use the policy tools available under the GST framework to address the consequences of the historical interpretation.

The Supreme Court has settled the valuation question. What remains unresolved is how the government deals with liabilities accumulated during the period when the industry operated under a different interpretation of the tax framework.

For RMG companies, the September GST Council meeting therefore represents a potential inflection point.

A Section 11A-based waiver or a structured regularisation mechanism could close the chapter on legacy disputes and prevent further litigation. A decision to proceed with recovery, meanwhile, could push individual companies and their founders into another round of tax litigation—with potentially significant consequences for an industry that has already undergone a major contraction.

The question before the GST Council is consequently no longer simply how much GST the gaming industry owes.

It is whether, after years of litigation and a Supreme Court ruling that has dramatically altered the original tax exposure, the government wants to pursue the remaining legacy claims—or use the GST framework to bring the dispute to a definitive close.