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"In the case of Dream11, bets worth ₹1 lakh crore were placed and this has attracted a GST of ₹28,000 crore-plus," said an official privy to the development. "Similarly, in the case of Games24x7 Pvt Ltd and affiliates, bets of over ₹71,000 crore were placed, which has attracted a GST of ₹20,000 crore-plus," said the official.
According to the official, GST has been calculated on every bet placed on the platform. "So even if an individual places four bets amounting to ₹100, GST of 28% is applicable every time a bet is placed," the person explained.
Executives in the real-money gaming industry estimated that the calculation used by the DGGI, which involves taxation of a deposit amount every time it is "rotated" through a game - i.e. each time a bet is made - could lead to tax liability rising by 1,300-1,400% on a yearly basis. In comparison, these platforms currently pay 18% of the commission charged on player deposits.
As opposed to this, the prospective taxation method suggested by the GST Council in August on "deposits" would lead to tax liability increasing by about 400% on a yearly basis, the executives added, declining to be identified.
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"After the issue of show cause notices, the firms have the option of appealing before the adjudicating authority (AA). The interest, however, kicks in from the date of issue of the notice. And if the AA rules in favour of the department, the interest will be applicable on the amount the AA orders and penalty, if he deems fit, which could range between 5% and 20%. While interest will be calculated on a yearly basis, penalty will be on the entire amount," added the official.
Executives in the industry, however, were unsure of appealing before the AA, as that would also require firms to pay 10% of the claim amount up to a cap of ₹100 crore. "A Dream11 might be able to muster that kind of an amount somehow, but it is unlikely that a smaller firm will even have enough cash to pay 10% of the claims made against them," said an industry lawyer.
Sources told ET that after the issue of the pre-show cause (or DR01 A in GST parlance), industry representatives appealed to the government against the GST demands.
"The industry has pleaded that the GST demand raised is 3-4 times their revenues and that they will have to shut shop. They have also said that these bets were placed as early as 2017 and there is no mechanism to trace the customer and ask him/her to foot the GST bill now. This means the dues will have to be paid by the companies themselves. While certain state governments are against 28% levy on fantasy games, the Centre is of the view that this isn't an essential commodity and 28% tax should be levied," another official added.